Making a budget; boring but crucial to financial success

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Making a budget; boring but crucial to financial success
NZ South Island 2012. Credit: Roger Nusbaum

By Roger Nusbaum

A monthly budget would seem to be simple enough, just list out all of the monthly bills on a spreadsheet and how much they usually are and then check them off as they get paid.

That is part of it but like many aspects of personal finance it isn’t quite that simple.

The building block of understanding is that very few people really understand the full extent of how much they spend every month, not just on monthly bills but on things like eating out, fuel for their car and even going to Starbucks.

Keeping track of all expenses will make it easier to look for way to cut spending which could make your financial life a little easier.

So making the basic budget can be as simple as follows


Car payment

Electric Utility

Cable TV

Landline Phone

Internet service

Two smart phones


Car insurance


Home heat

Gas for vehicles

Pet food

Haircut for 2 people


Your list of monthly bills might be different in terms of the bills you pay and your amounts are surely different but the concept is the same; an itemized list of monthly bills and other very regular expenses. You have some total at the bottom of your budget spreadsheet and hopefully your income exceeds your expenses. To the extent your income exceeds your budget you are living within your means or even better living below your means.

One thing not included is credit card payments. As a follow up the article on debt I’m assuming (hoping) you’ve paid off all credit card debt.

The above is the simple part of creating a budget but there is more work to do. Habits alluded to above like dining out, clothing needs, expenses for any children like daycare, their clothing and any activities they participate in. A reasonable way to budget for these items is to go through your check register for the last 12 months (hopefully you have Quicken or similar software and can sort the information on your computer) and add up these and any other lifestyle expenses.

Again, you have a total number; monthly expenses plus lifestyle expenses and again hopefully that number is below your combined take home pay. If your expenses are below your pay then you are probably in good shape but if not then your financial situation is unsustainable and something will have to change.

The final part of the process is the most difficult and is rarely mentioned on personal finance websites. In addition to (mostly) fixed expenses and lifestyle expenses we all have one-time expenses that cannot be budgeted for.

Go look at your Quicken again and find your one-time expenses and you’ll probably see that you have something almost every month. This month we had to pay $500 for a transmission repair for my wife’s 2003 4-Runner. Last month we had a $375 vet bill, at some point we all need to replace the tires on our vehicle, earlier this year I needed new boots for wildland and the list is of course endless and most importantly cannot reasonably be budgeted for.

Some of us have more or less luck with this sort of thing but a strategy for how to reduce the financial shock of these events has to start with how much you have had to spend in the past on one-time unbudgetable expenses.

Ideally, in addition to all the other things you budget for every month you should add a line item for a little emergency fund specifically earmarked for these surprises. Having this sort of emergency fund reduces that likelihood of needing to resort to using a credit card for this type of expense and as we talked about previously, staying out of debt should be everyone’s priority.

If you had $4000 worth of one-time unbudgetable expenses in the last year then you would want to target putting away $335 a month toward bills. It can’t guarantee you won’t have to turn to a credit card for an expensive home repair but it puts the odds in your favor and that is the big idea with these articles; making your financial life easier.


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