Beginning to Budget

Author | Laurie Whelden

For most people, money isn’t very fun to talk about. It’s one of those things, like politics, that can be considered taboo to discuss with those outside your household. Or for some folks it’s just plain stress-inducing. I, however, am all about talking money. I think talking about it helps to dismantle its power over us, and can give us a more realistic understanding of what it can do.

Prior to learning how to budget, I was fairly inconsistent when it came to spending. I would scrutinize my purchases and lay guilt trips for myself when I bought something “fun,” only to squander money away each month at restaurants with my friends and wonder why I was broke.

When I first moved in with my husband, we decided to open a joint bank account and pooled our money together (which at the time consisted entirely of student loans!). This has worked for us - but there are several options for couples we’ll discuss below. Once we got married, I got serious about budgeting. With student loan payments, a wedding to pay off, and monthly expenses I wasn’t sure were “normal,” I felt I needed some kind of game plan. We certainly have fallen off the wagon from time to time since we started - but for the most part, having this handy guide has been invaluable and has allowed us to finally feel in control of our finances.

There are several different programs available these days to help you budget. Most are apps for your phone that can also be used online. Some track and categorize your spending as it happens, like Mint. Many credit cards also offer this service. This approach, however, is reactive rather than proactive with your money. For some folks this is all they need to get their spending on track. But in my experience, this method made me feel guilty about how much I had spent, and didn’t end up giving me any more control.

The key to getting control of your money is being proactive - not reactive. Enter zero-based budgeting. This approach makes sure that every single dollar that comes into your bank account is given a “job” - so all money is accounted for. You know that feeling, when you look at your bank account and are amazed by how rich you are, and then a month goes by and you wonder where it all went? A zero-based budget planned ahead of time accounts for every dollar you’ve got - and lets you know when you’ve got the wiggle room, and when you don’t.

I’ve been a You Need a Budget (YNAB) convert for three and a half years now. This zero-based budget program does have a yearly fee (which is easy to budget for!), but comes with a lot of great features, helpful videos and documents, and even email help when you need it. It can be used as an app or on a browser.

For a no-cost option, some folks create their own zero-based budget in Excel. Morgan, of Humble Home fame, uses EveryDollar (created by finance author Dave Ramsey) and they offer a free version of their program. Says Morgan: “I had been using Mint, but decided to switch at the beginning of this year. I love the simple, light aesthetic (aesthetic is big for me!) and intuitive features.” The best part of zero-based budgeting is that you tailor it to fit your lifestyle, your goals, your priorities.

EveryDollar Budget Dashboard

As helpful as it’s been, it took me a few months to get used to the zero-based method. Basically, when each paycheck or disbursement (whatever your income is) comes in, you break down that amount of money into varying categories for your month. No more and no less than that amount of money. Generally, you want to fill your most important cost categories first: rent/mortgage, groceries, utilities. Then as you are able, you fill in more categories. As time goes on, you may even be filling NEXT month’s bills with THIS month’s paycheck. It’s a great feeling!

As you start spending, you label each cost and keep track of how much you have left in that category. Most paid programs, like YNAB, import directly from your bank. Some require you to enter spending yourself. If you overspend in a category, you can balance your monthly budget by moving some money from another category.

But how do you know how much money to budget in each category? Where do I start?

Well, there are some costs in your life that are currently fixed, and some that are flexible. As you create and adjust your budget, you’ll make it fit your unique household. Here are the steps I recommend when starting the budgeting journey.

1. Figure out how much money you have coming in.

This may seem like a no-brainer, but before you know how much you can spend, you need to be sure you know how much is coming in. For folks with regular paychecks, this should be simple. But for those who have varying income, it can be a bit trickier. Following your budget closely is more important in this case, and prioritizing your expenses (which you’ll see below).

If you are in a couple and do not share 100% of your income, there are a few options you can take. Both persons could contribute the same amount toward shared expenses (splitting groceries, rent, etc. right down the middle). Or, if you have drastically different incomes, you could each contribute an equal percentage (say 75%) toward shared expenses in a joint account, and keep the remaining 25% in personal accounts.

2. Determine your expenses for the month by category.

There are a myriad of ways you can divide your expenses, but it’s vital to rank them by importance so you know where to allocate money first. For an obvious example, rent and utilities generally need to be prioritized over eating out expenses. Through YNAB I’ve landed on these five categories, which may or may not make sense for you. If you are not yet budgeting a month ahead, it’s also important to factor in what time of the month a payment may be due.

a. Immediate obligations - basics for survival and avoiding debt collectors, come up monthly