How Do You Budget?

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Change Your Budget Habits

Google “How do you budget” and you’ll get tons of how-tos on budgeting.

Up until just a few days ago, I, like the 761 million other people that have written about budgeting, assumed that was the right way to think about budgeting – it’s something you do. Then, I opened a recent edition of DailyWorth and Amanda Steinberg hit me with this:

“The truth is, you don’t have to ‘stick to a budget'; it’s already there (money’s coming in, bills are going out, right?).”

All of the sudden, “How do you budget?” becomes “How do you budget?

Let’s go down this new road and see if we can improve our budget system.

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Revealing Your Budget

To begin improving your budget, you have to take a good snapshot. You need to discover your budget. Remember, your budget is a living thing and whether you manage it or not, it’s happening. Don’t start with a blank piece of paper. Don’t list out your income and expenses. Don’t write beside them what you (wish you) made and spent on each item on the list. That is painful, boring and setting yourself up to lie to yourself and wonder why you end up short each month.

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I want you to grab two things:

  1. Your last month’s checking account statement or your check register, and
  2. Your last month’s credit card statements.

With this information I want you to do a very simple exercise:

  1. List your checking account. Then, next to it, (a) list the total of your deposits and (b) list the total of your withdrawals.
  2. Then, list each of your credit card accounts and next to each, list the total of new monthly balances.

The objective is just to get a high-level, monthly overview of all the money you have coming in and going out. Don’t get into the details. We don’t care about the specifics of the income and expenses – just the totals. With this done, it is very easy to calculate (and see) if you are spending more or less money than you have.

Take a look at the example I did below, starting with the top section:

Change Your Budget Habits

Look at item #1: You can see that I simply subtracted my withdrawals from my deposits and it looks like I have $422 left over for the month. However, this is number is deceiving and is the source of a lot of debt trouble.

Let’s move down to item #2: I have added in my credit cards and simply wrote down any new charges I have put on my credit cards (ignoring any existing balance for now). As you can see, that $422 is quickly eaten away and I am actually spending $253 more than I brought in this month.

Changing Your Budget (Habits)

Completing this simple exercise will quickly give you a clear picture of how your budget needs to change. In this case, you need to alter your spending by $253 or make $253 more (this may be is easier and certainly more fun).

In the lower portion of the above worksheet, I have made some adjustments:

Look at item #3: Without getting into the details of each item within these accounts, I tried to devise a logical plan I can follow.

The first adjustment I made was in my checking account. I simply took a little bite out of it and made it a round number. I’m sure I can find $78 in discretionary spending (e.g. eating out is always a surefire area to save in my budget). As an alternative, can you find a way to make an extra $100 a month? You can. Be creative.

Then I looked at the credit card I used the most. Chances are there are a few big purchases there or one too many runs to Target or Wal-Mart. So, I figured I could shave $100 off of that.

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Finally, I went to the last credit card that I only used a little bit. Easy strategy here, which I think makes controlling your budget easier as well – reduce the variables. Take that credit card out of your wallet and only use one. With less temptation, I guarantee you will save money by only using one credit card.

Look at item #4: You can see we have balanced our budget and the only thing I need to remember as I go about my daily business are these three things:

  1. Keep my cash, check and debit expenditures under $4,500 or make any extra $75 to $100;
  2. Take all but one credit card out of my wallet;
  3. Keep my credit card spending under $400 for the month.

Now your first battle is won – you have a balanced budget. The next fight is to squeeze out a little leftover cash each month to start paying down the debt in the right-hand column on my worksheet. But, as they say, one step at a time.

Do the same exercise. Come up with your three rules. What are they? Don’t forget to do it again at the end of the month and see how you did.

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  • Julie

    Years ago, I took advantage of a bi-weekly payment plan for paying my monthly mortgage. I was also on a bi-weekly payday schedule, meaning two months out of the year, we would get three paychecks in a month.

    Setting aside (budgeting) half the monthly mortgage payment every two weeks got me thinking about my other fixed monthly expenses: car payment, car insurance, credit cards, cable, and I began setting aside half of those costs bi-weekly in Quicken. I also tried to estimate other, non-fixed costs, such as utilities, etc.

    Once I have set aside half the amount I know I need for all the bills I anticipate paying in the month, every paycheck, I then have a pretty good idea what my disposable income is going to be for the next two weeks.

    It takes discipline, but it is worth it.

  • Kevin

    Bill, Thank you for such a refreshing way to look at my budget. SIMPLE, SIMPLE, SIMPLE
    Why does eveyone else make it so confusing?

  • Mark Corbe

    Hello, I have simple rules for budgeting. The most important is, believe it or not, lie to yourself. If you have $5.00 you will spend $5.00. If you have $100.00, the same applies.

    Whenever I make a transaction, if it’s $23.00 I deduct $30.00 from my banking ledger. So if I had $100.00 instead of having $77.00 I now have $70.00. This will limit you from buying something cheap from a chain store that if you think about it, you probably do not need.

    This adds up if you use it for your everyday purchases.

    I used this method to pay for my wedding as well as other debt obligations.

    Number two, and this probably wont be posted on this web site since it is a home loan affiliate, never pay more for your mortgage each month. Your mortgage is most likely amortized and it will not save you money to pay extra early. Read your agreement to be sure. It will save you money in the long run but less than saving the extra money yourself and collecting interest on this money and paying it off when you have accumulated enough to do so. You will be better off to have invested this money on your own behalf. The mortgage holder will be happy enough to invest your extra capital in their own behalf but it will not save you a dime each month through your mortgage interest rate. Better to collect on your own money then them for nothing. You are already paying them too much.
    $4.00 a month is better than $0.00 a month.

    This requires self control and if you follow my first suggestion you will succeed.

    I have used this method to pay off auto loans and credit cards that you can save money by paying off early (not amortized) using my extra cash saved on interest ultimately freeing up money to attack my mortgage.

    If it puts things into perspective, I am by no means a financial adviser but a factory worker in Ohio with two mortgages, two houses, and a family that relies on me.

    One note, make sure you do not have early pay-off penalties with any of your current obligations and if you do, insist that in the future these hurdles do not apply!

  • Bill Rice


    Super smart getting your debt payment schedule on the same schedule with your pay. I know I have at various times on my life been on bi-weekly, twice a month, or monthly pay schedules and trying to pay bills when that is out of sync can be challenging.

    A lot of folks don’t know you have several options for how and when you pay you bills. If a different day of the month is more convenient (i.e., first or middle or end of the month) or you want to try a bi-weekly option–simply call you mortgage or credit card company. Most times they we change it.

    Thanks for the comment and idea Julie!

  • Bill Rice


    I’m all about the SIMPLE! I’m so glad you found it helpful.

    Thanks for the comment!

  • Bill Rice


    I know a lot of folks that use and swear by that technique. I think my tendency towards OCD would get in my way of using it personally, but it’s a strong point.

    You can accomplish a similar tactic by automating some forced savings. I personally have a dedicated amount auto-transferred from checking to a high-interest savings account every month. It is a very similar concept–it’s still there, but it is a pain to get to.

    As for the mortgage pay-down comment. I sort of agree with you. If you’re focused on paying down your mortgage it is probably smarter to refinance into a mortgage that’s consistent with your financial objectives. For example, if you want to accelerate a pay-off it might be smarter to refinance a 30 year into a 15 year mortgage. After all, there are some great deals that can get you paid off faster and save you a ton of interest.

  • B Loyd

    I’m not sure I see how putting money in a savings account will help save me money in the long run as opposed to paying off my mortgage early…and then putting the money that used to go to monthly payments toward savings at that point.

    I mean, sure, I suppose it’d work if the interest earned in a savings account is higher than the interest I’m already paying on a high mortgage balance. But if your savings balance is low and the interest offered on it is also lower than the interest charged on your high balance mortgage, I can’t the mathematical benefit of putting the money in savings rather than paying down the balance on the mortgage. To me that’d be like paying extra on a low interest credit card while neglecting to pay down a higher interest credit card, with all other things being equal. That doesn’t make sense to me.

  • B Loyd

    PS. I have used that technique of round up the amounts of my purchases to pad my checking account. It really works, and has helped prevent overdrafts from occurring, which is always costly if such a mistake is made.

  • Tom

    B Loyd I totally understand what you are saying but I think there is a benefit beyond the mathematical one. Having that savings is merely a safety net. You don’t necessarily have to put a lot into it but I think its prudent to put some away, while prioritizing your higher interest accounts.

    I guess, for me personally, I don’t see a saving account as a way to make money in the long run, its just there in case of emergency.