How to Set up and Stick to a Budget

Step 0

The reason we're starting at Step Zero is because there's an important step most people skip. To help insure you set up a realistic and manageable budget, you need a Spending Journal.

The next time you get paid, keep track of every penny you spend until the next paycheck. Put everything in your journal from rent and the electric bill to your fast food tab. If you give 50 cents to a panhandler, write that down too.

After you've finished your Spending Journal, sit down and break it down into Needs, Impulses and Wants. If you had sushi for dinner, put it into the food category but put a star next to it. This means technically you were filling a need (food), but it might not have been the most cost-effective way to gain sustenance.

Once you've finished this breakdown, take a close look. Do you have a lot of stars next to certain expenses? Are you spending your money in the most efficient way possible? Are there some things that you could be doing a little differently — and other things that are non-negotiable?

Once you've analyzed your Spending Journal, you are ready to move on to Step 1 of setting up a budget.

Step 1
Choose a budget period .

This is the amount of time you're going to use to calculate your budget. The most basic period is monthly. That's because most bills are due once a month. For our example purposes, let's say you want to establish a budget period of just two weeks.  

CAUTION: Don't forget peak spending months like December and the months that your insurance is due or property taxes, birthdays, etc.

Step 2
Estimate income and expenses.
INCOME
For this step we'll make these assumptions:

• You have a part-time job.
• You get paid by the hour.
• You work the same amount of hours every week.
• You get paid every two weeks.
• You work 20 hours a week (40 hours a paycheck).
• You earn $8.00/hour.

We'll also assume that you have earned some scholarships or grants or have another source of income besides your job for this semester.

Therefore, your gross pay (before taxes) is $320.00 (40 hrs x $8.00) every two weeks or $640.00 each month.

For our example, you also have a grant of $750 that has to last you for the next six months. So you have an extra $125.00/month or $62.50 every two weeks to help you get by.

So your total monthly income is $765.00 ($640.00 plus $125.00).

EXPENSES
Let's assume that you've wisely decided to keep your expenses to a minimum since you earn very little money. This is where your Spending Journal really comes in handy. It can serve as a guide to keep your budget as realistic as possible.

Here's an abbreviated list of Monthly Expenses, followed by their two-week breakdown. If you would like a more in depth list of expenses, check out this budget sheet that you can use to create your own budget.

Expenses:

• Deposit to Your Savings Account — $64.00 ($32.00 x 2 weeks) REMEMBER: pay yourself first.
• Rent — $300.00 ($150.00 x 2 weeks)
• Renter's Insurance — $ 25.00 ($12.50 x 2 weeks)
• Utilities — $40 ($20.00 x 2 weeks)
• Food — $150.00 ($75.00 x 2 weeks)
• Cell Phone — $50 ($25.00 x 2 weeks)

This is how it would look in an Excel spreadsheet:

The due dates are included to help you keep track of when you should pay each bill.

As you can see, you have a bit of money left over, but this chart is also somewhat incomplete. We did not include any travel expenses (gas, auto insurance, car payment, etc.) or entertainment costs (dates, movies, whatever flips your lid, etc.).

Step 3
Record actual expenses and income.

This is when a checkbook register comes in handy. Since you probably pay all of your expenses from your checking account, you need to keep an accurate log so you'll know how much money you actually have. In your register, fill in how much you get paid and how much you actually spend. Use this to track how well you are sticking to your budget.

If your financial institution offers online bill payer service, take advantage of it. This automated service will help you make sure you're paying your bills on time. Most services will let you enter the amount and the day/date you want a bill paid, and all you have to do is set it up and walk away. The service does the rest. You can choose the same date every month or choose every third Friday or every other Wednesday to pay your bills if you want. Just make sure that payments will get there on time. Most electronic payments take 1-2 days to post to your payees (the people you are paying). If the company or person you are paying (landlord, gardener, Mom) doesn’t have electronic capabilities, bill payer service can usually cut a check and mail it to whomever you want. If that's the case, it usually takes 3-5 days to post so be sure you are timing your payments correctly so that they get there on time.

Step 4
Check-in.

Every few months, look over your budget and see how it's working out for you. Are you making more money? Can you get by with spending less on "wants"? Make any adjustments that you think are necessary.

Now that you have the gist of setting up a budget, use this template to get started on your own budget.