Setting Up a Budget

OK. So for some strange reason, you actually read what I wrote last month and decided that you've had enough. Enough uncertainty about your checking account balance. Enough of the feeling like your paycheck just disappeared after another month of life. Enough of the pre-Christmas freakout associated with the pressure to buy your daughter that doll that uses the bathroom, skateboards and says "totally awesome" in three different languages. (On a side note: please, please, please don't buy something like this for your daughter. You will forever regret it!)

Now that you've been recording your income and expenses for the past month, this is the perfect time to take a look at your information and set up a starter budget for early 2014. Let's take a look at the basics of budget building.

Your basic budget will consist of two major sections: income and spending. So far, so good. Right? Using one of the sample sheets posted on the last blog or even utilizing your own on a spreadsheet, first begin by recording your monthly income. Why monthly? Two reasons:

1. You don't want to do a micro-shot of your spending. Taking a view from higher up will give you more information to sort your spending and income into categories where you can better analyze your financial habits.
2. Most bills will come on a monthly basis, and this will make your budgeting much simpler from the outset.

First gather your pay stubs from this past month. (If you have more than one wage-earner in your family, add them all up. What's mine is yours, right?) When Karen and I got married, we knew that she would eventually stay home with our little arrows (Prov. 127:3-5), so we determined to only spend my income on our living expenses and Karen's pay would go toward getting out of debt. If this sounds like something you're considering, fine. But go ahead and place all family incomes on the income line initially. This will let you know what you're working with. Bonuses are not a predictable income source used for living expense calculations. If you get bonuses, awesome! Use them to pay down debt or save for a vacation. But do not include them as part of the income that will determine your lifestyle. This is recipe for disappointment. An important caveat for those bringing in a variable income or get paid on an infrequent timing: don't let the math trouble you. Budgeting can be done! Check out this link for some tips on setting up a variable budget.

Now that you have your income recorded, begin to place your expenses in their appropriate categories. The good news is that 85% of your monthly budget should be made up of just five categories that should remain fairly stable month-to-month: Tithe (10%), Taxes (~20%), Housing/Utilities (30%), Food (11%), and Transportation (14%). The bad news is some of you have been spending half of your paycheck on shoes every month (or worse yet, your car!). To get a handle on how to allocate your monthly earnings, check out one of the great tools offered by Crown Financial Ministries or Compass.

Once you have gathered information for one month and categorized everything, your next step will be to take a look at your income and expenses and make sure that they come to a zero balance (i.e., everything that comes in goes somewhere and you don't spend what you don't have). You may need to make some tough decisions at first while determining what should be reduced in order to achieve this zero balance, but it gets easier! The goal is to create a written and agreed-upon plan for what to spend next month based on what you already spend without going into debt. Most of the time it will take a few months of tweaking and revising your numbers to start feeling like you have some control over your budget. If you've got the will, there is a way. And remember, there are limitless resources out there. So hang in there and next month we'll discuss a few common ways to increase security in your finances while utilizing the budget you've just created.