For demonstration purposes, let's pretend that you now have a budget looking like the below budget. These numbers were made up, but would represent someone in Baby Step #3 of Dave Ramesey's program. In other words, they have paid off all their debt besides their house, and are now building up an emergency fund. If you aren't familiar with the Baby Steps, you should get familiar. The steps are outlined here: https://www.daveramsey.com/baby-steps/.
Example Budget:
| Monthly Income |
|
|
|
Paycheck |
5000 |
|
|
|
| Giving |
|
|
|
Tithing |
500 |
|
Charity |
30 |
|
|
|
| Savings |
|
|
|
Emergency Fund |
1601 |
|
401k |
211 |
|
|
|
| Housing |
|
|
|
Mortgage |
725 |
|
Water |
53 |
|
Natural Gas/ Propane |
40 |
|
Electricity |
42 |
|
Mobile Phone |
35 |
|
Cable |
11 |
|
Internet |
33 |
|
|
|
| Transportation |
|
|
|
Auto Gas |
50 |
|
Car Replacement |
100 |
|
Auto Insurance |
45 |
|
|
|
| Food |
|
|
|
Groceries |
400 |
|
Restaurants |
20 |
|
|
|
| Lifestyle |
|
|
|
Shopping |
60 |
|
Babysitting |
20 |
|
Amusement |
20 |
|
Kids Activities |
100 |
|
|
|
| Insurance & Tax |
|
|
|
Health Insurance |
80 |
|
Life insurance |
20 |
|
Taxes |
600 |
|
Legal / AD&D |
20 |
|
HSA |
150 |
|
Dental Insurance |
25 |
|
Vision |
9 |
In this example, this family grosses $60,000 annually, which comes out to $5,000 per month. You will notice, that every dollar of the paycheck is allocated to something, even the government gets a category under taxes. Also, if you entered this into every dollar, you would see the following breakdown:
Giving: 11%
Savings: 36%
Housing: 19%
Transportation: 4%
Food: 8%
Lifestyle: 4%
Insurance & Tax: 18%
The largest portion of this persons paycheck is going toward savings, which is great for someone in baby step #2. Also, you can see their take home pay is $5000 - $904 - $211 = $3885. Their mortgage payment ($725) is much less than 25% of their take home pay ($971), which is also great.
Now that you have a budget in place, how do you execute it successfully? Before the month begins, you should have a months worth of paychecks in your checking account. Let's take, for example, someone who gets paid on the 1st and the 15th. If it is June 1st, then you should have two paychecks worth of money in your checking account: your check from May 15th (previous month) and your check from June 1st (today). Another example is someone who gets paid every other week. In this case, you would still save up two paychecks worth of pay. However, since there are 12 months in a year (12*2=24 paychecks needed), and 52 weeks (52 / 2 = 26 paychecks), you will have two EXTRA paychecks during the year. Those two extra paychecks can go straight toward paying off debt or building savings. Hopefully that all makes sense. Again, the important thing is that at the start of the month, you have exactly one months worth of pay in your checking account. However you choose to do that is fine.
To start the month, you will want to pay the most important things first: Tithing, Debt or Savings, and Bills, in THAT order. So, in the example above, on the first day of the month you would pay your $530 toward Giving, $1812 toward Savings, $939 toward Housing, $145 toward Transportation, and the $904 from your Insurance & Tax would have automatically been taking out of your paycheck. That means, that at the start of the month, the only budgets with money left in them are Lifestyle, Food, and Auto Gas. So, of the $3885 in take home pay, only $670 is left in the account on day #2 of the budget. Wow is right! A little scary perhaps, but if you have an emergency fund as you should, then this should not be scary at all.
Now, how do you spend the $670 that is left. The most effective way to do this, is to divide each of the remaining budgets into weekly budgets. $400 of the $670 that is remaining is Groceries. So let's focus on that one. If you have $400 budgeted toward Groceries, and four Saturdays in a month, then split it in four, leaving $100 per week for Groceries.
Groceries are hard to keep in check, but my wife and I have found a system that works. Every Saturday, sit down and plan the meals for the week. We then write down the ingredients for those meals that we don't already have in the pantry. This list of ingredients becomes our grocery list for that day. Next, we go to the grocery store, as a family, and purchase about 90% of our grocery budget for that week. So, in this example, we would spend $90 on Saturday. That gives us a $10 budget for other random Groceries that we forgot about during the week. The reason we go as a family, is so that the kids can learn how much things cost.
But how do you stick to $90 per week in groceries in this example? Isn't it embarrassing to get to the checkout and have to take items out of your cart? Yes, that can be very embarrassing! To make sure we are right on track, I pull open the calculator on my phone as we go through the store. As items get added to the cart, we roughly add up the cost. This is helpful because it makes you second guess whether you really need that $10 box of Oreos at Costco. When we get to the register, we already know how much the total will be. No more guessing! Guessing with money never ends up good.
I realize this was a long post. But hopefully it gives you some idea on how to start the month off, on track, toward a successful budget.