Before you create your next budget or monthly spending plan –
1.Â Track your spending for one month.
Use a spreadsheet, pen and paper, or online software, and track your spending for one month.Â Track all payments – including those made by check, debit card, cash, (and credit card, if you choose to use one).Â Remember to also include any payments that are automatically withdrawn from your checking / savings accounts.
2.Â Create a detailed list of non-monthly bills / expenses.
Remember, for a budget to really work, you need to plan for non-monthly (irregular) bills and expenses.Â For instance, you may need to pay annual life insurance premiums, twice-yearly automobile insurance premiums, and property taxes.Â These bills do not arrive in your mailbox each month, but they still need to be included in your budgeting plans.Â Click here for several options for how to deal with annual / irregular billing cycles.
3.Â Open a free checking account with free online bill pay.
I could not manage my finances without a free checking account and free online bill pay.Â Instead of writing several checks a month, I can go online, schedule payments, and I can finish paying bills in a matter of minutes.Â It helps to bank with an institution that integrates with your budgeting software of choice, or one that allows you to download transactions in several different file formats.
4.Â Open a savings account.
I use an online savings account – one that allows me to quickly transfer money, via it’s transfer system, to and from my online checking account.Â You need an account where you can earn interest, while temporarily saving money for non-monthly bills / annual expenses.Â I happen to have three accounts – a checking account at a local bank for day-to-day transactions, the Electric Orange account for online bill pay, and the online savings account for stashing cash until annual bills are due.
5.Â Consider a cash-management system that will work for you.
I am comfortable carrying cash, but some may not be.Â Find a cash-management system that you like and use it in connection with your budget.Â My wife and I us the envelope system. Here’s a video I made discussing the envelope system –
You may choose to use a debit card, or even write checks, instead of using cash, but be sure you have some sort of system set up that helps you account for how much cash you need and spend.Â Learning to properly handle cash, without wasting it, is one of the first steps in the life of a maturing home-finance manager.Â Stop using the excuse that you “spend more with cash”.Â If you can learn to be responsible with the $20 in your wallet, you can learn to be responsible with the $200,000 in your retirement account!
6.Â Establish a budget-creation routine.
Determine when you will create your monthly budget.Â Determine when you will discuss the monthly / weekly budget with your spouse.Â Be specific and write the date / time on your calendar.Â Instead of paying bills “whenever you have the chance”, build some time into every week for handling personal-finance related chores.
7.Â Balance your checkbook / reconcile savings account.
It almost goes without saying, but before you can create a budget, you need to know how much money you have on hand.Â Also, consider taking a look at any other accounts you might have – retirement, education savings, etc. – just to make a note of current balances.
8.Â Determine your next financial step / goal / plan.
If you are trying to build an emergency fund, you need to have an emergency fund category in your budget.Â If you are trying to get out of debt, you need a debt reduction category in your budget.Â If you are trying to fund your Roth IRA, you need a Roth IRA category in your budget.Â You get the picture.Â Also, remember, after you get out of debt, you can then remove that category from your budget, and replace it with some other category.Â The point is – Incorporate your current goal within the budget.
9.Â Prepare yourself to succeed (and fail).
If you have never lived on a budget, prepare to be amazed by how in control you will feel, once you start using one.Â Also, be prepared to fail, and feel frustrated, once your “perfectly” detailed plans fall completely apart.Â The truth is, none of us can tell the future, but we can make some pretty decent predictions, based on past expenses.Â For some, budgeting is easy, and becomes easier.Â For others, budgeting can be a struggle, and it takes time to find the groove.Â Be patient and enjoy the process!
10.Â Understand how to budget with irregular income.
For most people, even those with regular monthly income, it’s a good idea to learn how to budget with irregular income.Â For instance, most will need to know what to do with year-end bonus or a tax rebate check.Â For many, especially those who work on commission, it’s critical to learn how to budget when on an irregular income.Â Click here to read an in-depth article about how to create a budget when you have an irregular income.