Budgets are a necessary part of your personal finances. They only seem like a four letter word. Many people cringe when they think about looking at all of their bills, or seeing all their debt in one place. However, budgeting gives you something you wouldn’t expect–freedom from worry and peace of mind that you can manage whatever life throws your way financially.
So when a reader shared a question via email about budgeting I knew I needed to write a post about the basics. It’s not the first time I’ve had this question, and I know many people struggle with where to begin.
Here’s Kayla’s question:
My name is Kayla. I am so lost on what to do. I do not work I am in school (college) full time. My husband and I recently got married and with that I have gained 3 step children ages 10,7,and 3. He works as an iron worker and I have no idea where to begin a budget. Help me please I am young and never had to do this before but my bills are taking over I feel like I’m being drowned. Please help me!
Wife and mother of three girls with too many bills.
First of all congratulations on your family, Kayla, and thanks for your question.
It’s great that you’re going to college to provide a better life for your family and a career for yourself. Since you are in school full-time and a stepmom I’ll assume working part-time is out of the question, but if your budget is too tight it may be a necessity for at least a little while.
Let’s start at the beginning.
What is a budget?
A budget is simply a way to manage your money to make sure you are conscious of what you are spending. It starts simply enough with knowing how much bacon comes home, and how much you spend on bills, needs, and wants.
At the simplest form a budget is…
Income – Expenses
But typically a budget looks more like this….
Income – Retirement & Savings – Fixed & Variable Expenses – Financial Goal Funds – Wants = $0
First, Financial Goals
To start you should sit down with your husband and talk about your financial goals-this will help you get on the same page financially and bring you closer together as a family. You have some goals that are already clear-finishing college, and providing for your family-but you should also consider what you’d like your life and finances to look like in 5, 10, and 20 years from now.
I refer to these as financial goal funds. This may be saving an emergency fund, paying off debt, saving for a home, or any number of goals. It can often be a blend of goals-but emergency savings should come first.
The Basics of Budgeting:
Budgets give you power over your finances. You know what you have coming in, and what your expenses are. You make room in the budget for wants by getting rid of some expenses you don’t care about. You consciously choose where your money should go. The power is with you and your husband to make choices. It may seem daunting, but it’s actually liberating to be in control of your money.
Once you have goals in place- you can use your budget to make your financial goals and dreams happen. Here’s what you need to get started.
- recent paystubs
- bills for the past 3 to 6 months
- list of occasional, quarterly, or yearly expenses
- list of debts–I know this one is scary, but it’s necessary
- a pad of paper, pen and calculator–while using a spreadsheet is great for keeping track of your budget, it’s important to write it out to start
Depending on how often your husband is paid you can typically just make a simple budget that includes the following:
Monthly Income (after taxes-IE what he brings home on his paycheck)
- Expenses (rent or mortgage, monthly bills like electric, debt (minimum payments, loan payments, etc.)
- Spending & financial goal funds
Here’s a sample budget:
$4,000 (Monthly income (after taxes))
- $600 (savings account)
- $1000 (mortgage payment including property taxes)
- $200 (electricity)
- $50 (cell phones)
- $50 (cable)
- $200 (car payment)
- $100 (credit card payment)
- $600 (grocery budget)
- $300 (clothing and kids needs)
- $200 (fun money for husband and you-$100 each)
- $100 (family fun budget–movies, eating out, etc.)
- $200 (debt repayment)
- $400 (household repairs or to savings)
Note: this is a simplified budget-and your expenses are likely different, but the same principals apply.
A note for parents:
If you don’t have life insurance you should try to obtain policies for both of you. (read more How Much Life Insurance do I Need?)
You should also have a will for yourselves (consult a local lawyer for this) which will include information about guardianship for your children.
Health insurance is a necessary cost for families-if you don’t have health insurance through work look into state care which may be available for free or at a discounted rate.
If you have no savings that should be your first goal. Having at least a month’s expenses (note: not a month’s salary) to start would be great. If you have debt having a list of all your debts will help you know where to start paying off debt (I recommend starting with the lowest balance first to get you motivated).
If your expenses are more than your income you should look at every expense and see where you can save. For instance cutting the cable in order to save money each month. (read more at Cutting $17K in Expenses)
What advice would you share with Kayla?
Check out my free printables page including a monthly bill checklist, debt tracker, and more.
Now that we’ve covered the basics consider reading more about budgeting, and personal finance.
For more info on how to budget check out these posts: