3 Simple Steps: Budgeting

Apr 23, 2021 | Budgeting

Step 1: Create or choose your budget template


Any good plan begins with gathering the facts. You need to know what you spend and what you make, so those are your facts for your budget plan. Record these on a sheet of paper or using a budget worksheets or smartphone app.

Here are a few options you may find helpful ⇓

Paper-Based Household Budgeting

If using a sheet of paper, divide it into two columns. Label the first Income and the second Expenses.

On the Expenses side, create these subheadings:

    • Housing
    • Food
    • Transportion
    • Health & Personal Care
    • Debt Payments
    • Entertainment & Communications
    • Other

Step 2: Give Every Dollar a Name

First, record what you bring home in income each month (aka your net pay). List the date and amount of each paycheck or other income payment. If you get additional income, list that IF it is something that is recurring on a regular basis. For example, if you drive for a ride share company, list the minimum you get and the frequency when you receive that income. On the other hand, don’t list bonuses unless they are guaranteed.

Now, gather up your bills from the last month. Check your bank statement as well as any receipts you have for things you paid for in cash. You’re going to give every dollar a name by showing what it was spent on.

Continue building your budget in order of importance. Income is the first priority as you have to have that to buy food, pay for shelter and get to and from your work.

Then, list your expenses in priority order – shelter, food. and transportation along with health and personal care top the list. List the due date and payee for all bills.

Set the Payment Priority

Young person ascending steps with money at the topYour first priority on your budget is your housing expenses. Housing expenses include things like your rent or mortgage payment, utility bills, and homeowner’s or renter’s insurance. Some templates may put insurance or utilities in separate columns. If so, place these where the indicated on the template you’re using.

Next, add up what you spent on groceries and dining out. List these as separate line items under the food section.

Under transportation expenses, list your car payment or other transportation costs like ride share or bus fares. Include what you spent on gas, tolls, parking, and car insurance last month. List these as separate line items in the section. Now, total this section together to arrive at your overall monthly transportation expense.

Record any recurring medical expenses. Things like medicines you or another member of your household needs go here. Include personal care items like toothpaste and soap, as well.

Follow this by listing your debt payments. Exclude your car payment or house payment as you already accounted for those in a previous section. Total each section.

In communications and entertainment, include your cell phone bill, home phone bill, cable or streaming services, and internet bills. Round up on the amount you pay each month since these bills can fluctuate.

Get Everything in Your Budget

You may have things like home security, sports tickets, clothing, private school tuition, etc. List the amount you spend on each and the frequency you spend that amount along with any due dates. If you have other more infrequent expenses such as bills that are due only once a year or every three months, list those in the correct category before moving on.

Finally, total all your income by month and then do the same for all of your expenses. Don’t worry if the expenses total to more than the income just yet. You’ll tackle that in the next step.

Step 3: Establish your household budget percentages

Congratulations! Every you’ve given every dollar a name. It’s time to ascend to the next step and figure out your household budget percentages. You’ll also set your targets for each expense category. And, you may need to make a few changes in your spending.

To make those choices, start with your Other or Everything Else, Communications and Entertainment, as well as that line item you listed for dining out. Reduce your spending here so that your income exceeds your expenses. Once you make these decisions, recalculate total your totals in each expense section.


Save a few dollars each month or each paycheck. These savings become your emergency funds to help cover unexpected expenses. Having money put back for a rainy day helps you out in the long run. You won’t need to rely on loans from friends or family members, taking an advance on your credit card, or borrowing from a lender.

Once you have these totals, divide the total for each expense section by your income. Write that percentage down by the corresponding section title. you’ve now defined your current household budget percentages. How do yours stack up to these recommendations by Dave Ramsey?

    • Housing & Utilities (excluding insurance) 30-45%
    • Food 5-15%
    • Transportation (excluding insurance) 10-15%
    • Medical/Health & Personal Care 10-20%
    • Debts 5-10%
    • Other (includes communications and entertainment, too) 7-17%

If yours are higher, that does not mean your budget is wrong, but you may want to set goals to get closer to these targets. You also may wish to set a savings target of 10-15%. And, if you wish to give to charity or budget for other gifts, a good target may be 10-15%.

Match your bills to your pay dates to establish your payday budget, or what money from each paycheck belongs to what expense category.

You’re a household budget planner!

You now have your plan, and you’re ready to take on the next month. You’ll probably need to adjust your budget along the way as changes happen, and sometimes you may not execute exactly to plan. That’s ok. What is important is that you have a plan and that you track your progress regularly.

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