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Monday, January 5, 2015

How to Write a Budget

Here we are at the beginning of not only a new month, but also a new year.  How time does fly!  Happy New Year!!

It's a perfect time for setting new goals in the different areas of  your life -- money, health, fitness, parenting, relationships, job, education. Where to even start, right?

For me, since money ties in with everything else in my life, that's where I am starting, and I invite you to come along with me.

Now, this isn't the first time I'e written a budget, but since it's a new year, it's as good a time as any to dust it off and spiffy it up a bit with a fresh new start.

So, what is a budget? A bad word? A restriction on my fun? Hard? I don't know. (At least that's an honest answer.) Something that always ends up as a fight? (I hope not.)

Well, all of these may be true, but truly, a budget is just a plan or a map for achieving your goals. It's easy, after you learn how to do it. It's a tool which takes the fight out of the money in your relationship.

According to, a budget is a plan used to decide the amount of money that can be spent and how it will be spent.  So you're deciding before you spend even a penny where each and every penny will be spent.

It's a tool you can use to achieve financial security for yourself and your family.

But where do I begin?  That's a good question.

The very first time you write your budget is the hardest it will ever be, sort of. Honestly, it will be hard for probably the first 3 months and then it will start to be noticeably easier. That's the plan.

Now, the simplest and least expensive way to write a budget is on paper with a pencil (and an eraser).  If you want to you can get accounting paper or a special budget notebook. You can set up a budget on a spreadsheet in excel or even get a budgeting app. That is your choice.  Me? I'm all for simple so paper and pencil is it for me. And that's how I will present it here.

First, your paper needs to be formatted to be a budget so let's add a title and some columns.  Mine is called Budget January 2015, but you can call yours whatever you want. And I have 4 columns - Categories, Spent, Budget, and Balance. 

Ok? Ok.  So far so good.

What categories to use? This is where you have to be honest, and prioritize. Some categories are easy and nearly everyone has them (rent, food, fuel, clothing), and others...  well, you have to think about your own spending to come up with them. Look back through your bank statement to see where you are spending your money using your debit card. Look at your credit card statements.  Dig all those receipts out of your purse or car seat.

This is probably THE most important step of the whole process because if you're not honest about your spending now, your plan for the future will not work. So do the work and be honest with yourself.  You can change your habits later if you want or need to, but for now they are what they are.

Write all your categories on a separate piece of paper to start with. After you get your list of categories, you can prioritize them because they aren't all equally important. I know the credit card send you a bill every month and then they send letters, and then their lawyer sends letters.  Believe me, I know.  But paying that credit card is not as important as putting food on your table, especially when you have children. And I will share with you a plan for dealing with bills in collections later.  For now, we're just making a list and prioritizing it.

So for now, set aside all the debts.  Slide those to a corner of the table. Focus on just your basic needs -- shelter, transportation, food, and basic clothing.  And now, start writing your categories on your budget paper.

Start with rent/mortgage*, utilities (electricity, gas, water, garbage, basic phone - NOT cable, internet, satellite, netflix, cell phone, etc.)  (See the difference?), car payment*, fuel, insurance; food, and basic clothing.

*I know I said to set aside all your debts and now I'm including mortgage and car payment, but these are the 4 walls.  These are priority #1. They are not the same as credit cards and furniture payments.  We'll get to those later.

After you have listed your 4 walls, go ahead with listing the rest of your regular monthly bills, and then your debts. Prioritize your debts by listing them from lowest pay-off amount to highest.

Did you include hair cuts? What about dining out? Car maintenance and repairs? What about birthdays and christmas? Pocket money and Other?

Creating your categories is the hardest part of this whole process, and you will not get them all the first or even second time you do this. That is why there is the Other category. Just do the best you can, and know your categories will change over time.

Now, here comes the fun part!  Well it's fun if you're a math nerd like I am. For the rest of you, come along and you'll do fine. It's time to start plugging in numbers for each category.  Some will be easy because they are the same each and every month.  Others you will have to guesstimate the best you can. Be sure to put in an amount for each and every category you created, even if it is only $5.

An as you are plugging in amounts, do the math. Subtract each amount from your income and record that difference in the Balance column so you have a running balance headed toward $0. In a perfect world, we would all be living below our means and get through the whole column long before the money runs out. But that's not always the case, as shown in my sample budget.

In my sample budget, the money ran out before the categories did, so I chose to not fund the last 4 categories because it's the easy way. In real life, I would go back up through my categories and juggle the number until I find enough money to put at least $5 in each and every category.

Either way, the plan has to work on paper. If it doesn't work on paper, then there is no way it will ever work in real life. No way.

And that, my friend, is how to write a budget. You did it. Any questions? Please ask in the comments below, and I will answer them to the best of my ability.

Oh, but what about the spent column? What about saving? And debt pay-off? What if there just isn't enough money coming in to pay all the debts?

All of those are very good questions that I will tackle in future articles because it is just too much to do all in 1 blog post. For now, write your budget, your plan, and let me know how it's going.

One Step at a Time


  1. It's interesting to try and budget here because the income is in USD and it gets converted to euro every month--and this varies widely. It's never been the same in the 9 months we've been here! Now that the euro is weakening, the same number of dollars provided us on Friday with 90 euro more than the first payment we got in May, which was the lowest. Also, the electricity varies every time. We have also recently found out that Bill has a small pension coming to him from a previous job, so we will get some more euro, but how many will always depend on the exchange rate! Plus, because he's retired, he gets money off the electric bill and that will kick in this month, I think. I plan to budget the same amount and save the difference. Fortunately, we have few expenses. I know that our expenses for rent, internet, and electricity will be 450 euro or less, and Bill will need 20 for the GP visit to get his blood test. So I just subtract that amount from whatever we get every month and that's what we have. Those are our only expenses, besides food, which varies (based on what's left). Our phones are pre-paid Tesco mobile and since we very rarely use them, we still have plenty of credit on them. We bought one the day after we arrived and put 30 euro on it. We still have 15 left 9 months later--LOL. Once we get the pension every month, we can save that for travel and other stuff, adding it to what's left of the moving fund :-)

    Very informative blog post!!

    1. Our time in Australia was a lot simpler bill-wise than your Ireland bills seem to be!

      We did finally work out how to transfer money overseas using paypal rather than the bank which saved us about $50 in bank fees on each transfer. But yea, the exchange rate is a pain and makes no sense in the real world.

      Thanks Shari!

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    1. Now that we're set up, we don't have to think about it. Everything just comes out of the bank acct. Eircom is the big problem, of course. They stole 150 euro from our acct, which was not supposed to be taken, according to the rep. Then it was supposed to be put back within 10 days. When that came and went we were supposed to get a check within 15 days. He will be speaking to them again this week. They are the only problem. We closed our US account, so get things deposited directly here--but we learned that the pension can't be deposited into a foreign bank, so they will have to send a check. That seems crazy, but I wonder if they could deposit into Paypal--probably not, but it might be worth looking into! Thanks for mentioning that!