How Do You Create a Budget?

Updated on December 05, 2011
A.M. asks from Jackson, NJ
13 answers

We need to get on a budget so that we can save to buy a house. Those of you that follow one- how did you do it?

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answers from Pittsburgh on

I cannot recommend Dave Ramsay enough! He has lots of budgeting info in either book: Financial Peace or Total Money Makeover.

The first thing you really need to do is become debt free.

Good luck!

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answers from Oklahoma City on

First thing to do is track where you are spending your money. It helps if you can do a chart of some sort where each day you come in and write down what was spent during the day. Even a piece of gum out of a gumball machine counts.

When some people see in black and white where there money is actually going it is often easier to cut in some areas. For example:

You decide to pay cash for every purchase and use the receipts at the end of the day to see where your money is going.

You find that you spend $30 per week at the 7-11 on a large coffee. For $30 per week you can buy a machine that makes fancy coffee, the coffee, and a great travel mug for the car. You would save lots of money cutting that expense.

Also, you find that you are spending $50 every other week at the dry cleaners. If you have a dryer and buy some Dryel you could save the whole amount of your drycleaning bill. That would add up quickly.

You find that you don't use the full amount of minutes on your cell phone contract, never have used them in one month at all. You could cut down to the next lower contract the next time it is up for renewal.

When a person sees in black and white where the money is going they have a better idea of how to decide what amount of money to set for a certain area.

For example. You like in a place that is not really large enough to have coffee pots and lots of coffee sitting around. You really like this particular style of coffee that 7-11 has and you decide you really don't want to give it up. You decide to put $30 per week in the budget for coffee. It means you have to cut somewhere else so you have that money available. It is a weighing kind of thought process.

I would not give up chocolate or maybe some other kind of guilty pleasure but it would be easy to give up donuts at the 7-11 that always get picked up when buying the coffee. That would cut the $30 a bit.
When I was the President of the Habitat for Humanity Board of Directors I learned a lot about nurturing a family. I had a very good nurture committee. The woman who took that and worked with the families said that she found that people didn't realize they should budget 30%-33% of their take home pay for their housing bill. That would include the payment, utilities, insurance, upkeep, repair account, etc...they need to understand it takes a lot of their money just to sit in that home with the utilities on. Then there is food, clothing, fun stuff, gifts, all kinds of things that are necessary parts of life.

I recommend you look for some simple budgeting books through a book store like Hastings or maybe even the library where you can take it, read it, study it, and see if it fits with your lifestyle. If it is not one that is easy for you to read and relate to it will not be something you pick up and study. It needs to be one that you like and that makes sense to you.

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answers from Seattle on

Wrote down ALL of our bills.

Separated them out into 3 categories (necessary, useful, extra)
Lowered all the necessary ones that we could (rent, utilities, debt). Dropped all extras (magazines, newspapers, memberships), and altered most of the useful ones (like dropping cable and getting netflix & hulu... dropped all subscritptions, use "real world" exercise -like walking- instead of a treadmill the gym, etc.)

Figured out how much was left over.

Split the remainder. X for groceries. Y for transportation. Z for personal money (this covers ALL personal expenses; from haircuts to datenights to lunches out to clothes to hobbies... and they are *equal*).

Tried out the budget and tweaked it a few times the first few months.

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answers from Houston on
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answers from Washington DC on

I know you want to buy a home - find out what you would be pre-approved for if you were to start searching today...(added sorry - I lost my train of thought!!) this will help you make your budget as well. Setting a goal.

Here's what I would do. Please keep in mind that EVERYONE has a different way of doing it. You can also go to the library and borrow Dave Ramsey or Suze Orman books on budgeting.

A journal, pen and an envelope.

For the first month - keep a journal of every penny you spend. Put the receipts in the envelope....This will help you establish what you spend - thereby creating a budget.

Bring all your bills - water, gas, trash, electric, cable, cell, credit cards, rent, etc. and your LES (pay stubs). If you are not a salaried employee - you will need to average your pay over the last year to help you find out your income. Once you gather them all together - find out what you can reduce/lower, get rid of, etc.

In one column - print income. In another column write expenditures.


Income: $4,000
Ayden $2,000
Parker $2,000

Expenditures: $1810

Rent $1200
Car payment $ 350
Gas (House) $ 25
Electric $ 150
Trash Disposal $ 35
Metro/parking $ 50

You get the idea - include groceries, gas for cars...if there is money left over - GREAT!!! If not...go through the house and start selling things you don't need or want that can get you $$$ in the door and use that money to pay off any debt to get the income above the expenditures! :)

Then when you get that done....find out if you can do it all on one income.

Pay any and all credit cards down with the other income. If you really want a home - put one mortgage payment a month in the bank for six months - that will be your down payment.

If you can't make it during that time frame - you won't be able to afford a mortgage (I know - Debbie Downer) - but it's the realistic way to go about it.

Hope this doesn't make you crazy!

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answers from Las Vegas on

Total income less expenses = disposable income. Use strong discretion from there.

Make lunches
Use coupons
Don't over buy children's clothes (easy to do)
Press your own shirts
Choose family night out carefully
Use a refillable bottle rather than purchasing bottled water
Buy water by the case for outings & last minute rather than at the convenience store
Reuse bags wherever possible
Laundry soap - big part of the budget - assess whether a cheaper brand will work
Use coins where possible and always accept your change back
Cook meals with a plan - if you make a pot of rice with roast beef, tomorrow make chicken & rice soup
Stick to it!!!!

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answers from Washington DC on

when you make your lists, you have to be sure to include every little thing:
-every Starbucks, McDs, 7-11 trip,
- every $1.70 for a soda, $1 for gum.

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answers from Washington DC on


I have tabs of what we owe, what we make, and tabs for our paychecks that come in and what bills are paid from what. It is built out through 2013 right now. I'll go in and add a few months to it soon, just beause it's fun for me. I have been using it since 2009 and freak out when I can't get to it.

I don't like tools that I can't alter for what I need. So this is best for me.

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answers from St. Louis on

There are so many ways to make a budget. Are you trying to just cut back to save? If that is the case add up everything you spend and on what for a three month period, more if you have time. That way you have a true average of what you spend on things like clothes, groceries, gas, going out. If you do it off the top of your head, like okay last week we went out once, multiply it by four you will be no where near your real average.

So then you start with what is the least necessity. Say going to the movies, if you go out twice a month, do you need to go twice? how much of that is food, do you need to buy that much, how much is going in the trash after the movie? do you let the kids play video games at the theater, how much is that?

Go item to item until you hit things like utilities, what is your water heater set on, thermostat, how many lights are left on when you aren't in the room. Where do you have your fridge set at.

Generally when you haven't had a budget you will find it is really easy to cut hundreds off your monthly spending without it even hurting. I thought I needed my daily latte at 4.56 until I figured out it was costing 182+ dollars a month. I don't even miss them plus I get to work earlier or sleep later by 10 minutes by cutting that out of my morning routine. :)

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answers from New York on

There are many different types of computer programs, books, etc that you can use, but in reality all you need is some notebook paper, a pen, and a calculator. If you're an excel user, that's probably the best way to go.

I'd start with an annual budget and then you can convert it to monthly or weekly. you'll need to know all your income and all your expenses (doesn't matter which order you do this)

Make a list of all your income - take home pay, tax refunds, bonuses.

Make a list of all your fixed expenses. These are items that you must pay monthly/quarterly/or annually- rent/mortgage, taxes, car payments, loan payments, credit card payments (start with double the minimum payment), electric/gas/oil, phone, cable, medications you take regularly, insurance, day care.

Savings and retirement - include in your expenses how much you're putting away for retirement (unless it's already included in net pay), how much you need for your emergency fund, and how much you'd like to save towards your house.

Make a list of all your needed expenses - groceries, personal hygenie (toothpaste, shampoo), medical expenses, clothing, gas/transportation

Now the hardest one - your unnecessary expenses - entertainment, dining out, gifts, hair cuts, vacations, charitble contributions, fun money. I say that this is the hardest, because just like 80% of the population, you probably don't really know.

Now for the next 2 or 3 months track all your expenses. I do mean every penny, the cup of coffee, the change dropped into the Salvation Army kettle, the pack of gum, etc.

Compare your actual expenses to your "budget". Where are you over? Where are you under? Where can you cut back and what can you live without? Remember your goal, to save for a house.

Here's a website, where you can get some more info.

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answers from Kansas City on

What you need:
All your bills

On one write down all your EXPENSES
- bills at the end of the month and how much you pay - Include savings and Retirement, kids clothes, medical expenses, groceries etc.

add it up and write the amount in big red numbers down below

on the other piece write down your earnings/INCOME


That is what's left.

Write a wish list (things you are thinking of buying)
Can you afford it from what's left? Do you need to save up?
Do you have a savings account?

If you have savings, and you put money away each pay period. GOOD. If not, get one.

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answers from New York on

One of the more important things to do when determining you need to save for a house is to probably work backwards meaning determine based on your credit score, income and expenses how much house you can honestly afford. If you are struggling to pay rent understand that home ownership comes with some added bills attached, such as property taxes, water, sewer, garbage in some cases and a few others. The costs to heat and cool your home may be more than what you are accustomed to paying currently, it helps to be prepared.

Having a budget just helps you to understand and assess how much money you have and where it is going.

Saving is very important, house or no house. You should be putting aside a set dollar amount from every paycheck and that money should go into a savings account that is fairly difficult for you to tap into. I use an online savings account provider.

Don't touch your savings for any reason other than the designated reason. If you are accustomed to having the IRS withhold more money than necessary at tax time. Have that "extra" money be put into your savings and you may be well on your way to homeownership.

You should think of having at least a 5-10% downpayment based on the price of the house you can afford. Also leave yourself at least an additional $5,000 - $10,000 in savings on top of your deposit for accidentals and some new furniture. Every house I have purchased has needed a major repair within the first year and I was so fortunate to have some cushion to cover the unexpected.

Remember to not despise small beginnings. Start saving and build up from where you start but by all means start.

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answers from Washington DC on

I get paid bi-weekly so this is what I do:
As many bills/ expenses as possible I put on my discover card to earn cash back bonous awards and utilize the rewards for movie/ food ect.

All bills are rounded up & spilt in half then paid bi-weekly: ie Cable $150 = $75 Phone: $125 = 62.50 Car $352 = $180; this creates an extra payment yearly 

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