How to Create a Budget

The first two years of married life, my husband and I did not keep track of where our money was spent.  We just balanced the checkbook and spent as we wanted.  When our first son was born, however, we realized that we had no idea where the money was going, and we decided to create a budget and track our expenses.  We have been doing this for the last 10 years and it has made life so much easier.  We are not perfect about sticking to the budget, which is the hardest part of the process.  But, we are getting better all the time. 

I keep track of our expenses and pay the bills, but my husband can go on the computer any time he wants and see exactly where all of the money is spent.  This transparency in spending money has saved us a lot of arguments about how each of us spends money.  It has also allowed us to decide together what we need to spend money on versus what we want to spend money on.  After all the needs are taken care of, we negotiate everyone's wants. 

Here are some steps to help you create a budget and track your expenses:

1. Save all of your receipts, paycheck stubs, bill notices, ect.  The first step to creating a budget is to know what you are currently spending all of your money on, even your cash.  Put them in a place where you can have easy access to them, like a drawer or filing system.
2. Record all of your expenses onto the computer.  There are computer programs available (like Quicken and Microsoft Money) that help you easily track expenses/income and create a budget.  Or you can simply use input the information into Excel.  Saving all of your receipts even after you input the information will allow you go to back and get a more detailed analysis of where your money is going.
3. Create your budget.  Now that you have been tracking your expenses/income for a few months, you can create a realistic budget.  Some expenses are the same every month, like housing, but others will vary from month to month like power and natural gas, gifts, and vacations.  Use the numbers of your previous records of expenses/income to project numbers for the future.  I like to create a budget for the entire year.  After I get preliminary numbers put in, I will sit down with my husband and discuss how short/over we are and if my numbers are realistic. 
4. Regularly check your montly progress.  Whether it is daily or weekly, check your numbers to see how your actual expenses are matching up with your budget.  When unexpected expenses come up, this will also help you adjust your numbers for the month to help cover the costs.
5. Reassess your entire budget.  I like to create a yearly budget, then every six months go through and reassess our expenses and then drag the numbers out for another year.  So, in December 2009, I created a budget that went from January - December 2010.  In May of 2010, I will reassess the current budget numbers and make a budget that goes from June 2010 - May 2011.  I have found that the projected numbers get outdated as the family needs and wants change, so I don't wait more than six months to draw up another budget and start the process all over again.