First we gather our supplies: a notepad, pencil, pay stubs and bills from last month. Our budget begins with the income. Write down all sources of income - one per line. You have a salary. Does your spouse also have a salary? Stocks, bonds? Me neither.
Now write the amount next to each item. This is the total amount each month. After the amount, write how often. For example, I'm paid the 15th and last day. Are you paid weekly? Write down weekly. This isn't so hard.
Next come our expenses. Where do we spend our money? Don't worry about the order. Just write them in the order they come to mind: food, clothes, gas, oil changes, car insurance, mortgage, home insurance, renter's insurance, electricity, natural gas, Internet, cable, water, sewer, trash pickup, gifts (birthday, Christmas, anniversary), hair cuts, and all of the other things your family uses.
Next to each write down the amount you will spend this month. If your amount goes down to the penny, you are a nerd. At least round it up to the next whole dollar.
With a calculator, add up the monthly income. Write that number at the bottom of your list. Now add up all of the expenses. Write that number below the income. Subtract the total expenses from the total income.
Negative numbers are bad. You cannot spend more than you make. Here comes the hard part... Go back and cut expenses. Your total expenses must equal your total income. We call this a zero based budget. Income minus outgo equals zero.
What happens to positive numbers (income > expenses)? You spend more! No, no, don't rush out to the mall. I mean spend the money on paper - in your budget. Set the money aside for savings. Things break and children get sick. Whatever you call these funds, do it on paper, on purpose.
Unsteady Income
Invariably, someone has an irregular income. They earn commission, and their income depends on the sales that month. Or hours vary week to week. Either way, you can't really predict how much money arrives.Start with a low average for the income. Do you work between 32 and 38 hours a week? Budget for 32. That is your most likely minimum. What about commission? Calculate your average for the last two months. For the cautious, ignore your 2 best weeks when calculating the average. That weights your budget towards the lower end.
Now list expenses just as we explained above. Do not put dollar amounts next to them yet. First we prioritize the expenses. Tithe goes at the top - we honor God above all else. Next build the four walls: food, shelter, transportation, and clothing. Write these expenses into your budget.
Okay, now add more categories based on the welfare of your family. Yes, Visa wants their money back. They will sue you if you don't pay them. And that doesn't really matter when your baby's cold turns into pneumonia. Take care of your family. This is your money, not Visa's.
List debts - except the mortgage - at the bottom. The mortgage counts towards the shelter wall. Credit cards, bank loans, and financing all go on the end.
Finally start down the expenses list with the amounts. Go until you reach zero. Just under the zero, draw a line across the page. Any extra money above what the budget shows applies underneath the line in the order shown. Always pay the highest priorities first. Do not let American Express take away money for your glasses. Because then you fail the eye exam at the BMV and lose your license. Makes getting to work all the more difficult.
Sample Forms
The Lampo Group, LLC, provides excellent budget forms. Their forms already list the most common expenses (utilities, food, etc.). It's easier than writing the budget out long hand every month.- Budget Form: http://www.daveramsey.com/media/pdf/fpu_qbudget.pdf
- Irregular Income Budget: http://www.daveramsey.com/media/pdf/irregular_income_planning.pdf
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