Common Budget Set-up Questions

As a financial coach, I hear some common questions when it comes to setting up a budget, even if someone has been budgeting for years.

“I want to start budgeting but besides my monthly housing payment, I am not sure what else I should include. What other things should I include or where do I even start to create my budget items?”

“I currently budget for housing, groceries, gas, and utilities. What else do I need to budget for?”

“Yeah, I budget every month. I set aside a certain amount for the various items I know I spend on each month. Now, am I supposed to track how much I spend on them then?”

So how do you know where to start if you are creating your budget on your own? If you aren’t working with a financial coach, the best place to start is a tool you probably aren’t utilizing properly. Your bank account.

How can my bank account help me create my budget?

This works best if you aren’t using cash only to pay for things. But every time you use your debit card or credit card (note we suggest and prefer using your debit card over a credit card), your bank account tracks that transaction and logs it for you in your bank statement. It also tracks any payments that you have auto withdrawn each month automatically (which you may or may not have forgotten about).

When creating your budget, we suggest reviewing your current bank statement, and the month prior statement to get a full view of what expenses you have either auto withdrawn, written a check for, or charged to a card. This should give you a pretty good picture, but if you want to take it a step further, you can even pull two months prior and review that as well.

We call this a “statement autopsy”.

This means you are going line item by line item and categorizing them into potential budget line items. Examples not only include gas, groceries, housing, and utilities which are all pretty standard. But you will find spending tendencies you were unaware of or expenses you forgot you were being charged for monthly.

Knowledge is power

Now that you have a good idea of what you spend every month on things, put that data to work for you.

Include all your monthly non-negotiable payments: housing, utilities, student loans, etc. Some of these items will be fixed numbers that don’t change from month to month, but items such as gas and groceries fluctuate monthly. Reviewing the previous months will give you a good idea of how much you are spending on average, and give you a good starting number to insert into your budget for that category item.

Next, include any type of subscriptions, eating out, clothing purchases, outdoor expenses, entertainment items, or expenses that seem to be more lifestyle or “fun” things. Follow the same steps as above by adding these as line items to your budget and seeing on average every month how much you are spending in these areas to plan a budgeted amount to keep you accountable for your spending in the following weeks.

Again, some of these items, such as subscriptions, may be set in monthly dollar amounts, but reviewing your statement may surprise you on how several of those subscriptions can add up, and quickly to a high dollar amount without you even realizing it. Or you may be getting charged for something monthly that you completely forgot about and no longer use/need. Perhaps the end number you are seeing on how much you spend on eating out monthly makes you want to toss cookies. These could be dollars going toward other items or savings that you didn’t even know about had you not done this exercise.

How you set up your budget matters too

Remember, it’s not just what you put into your budget, but also how you set it up that is going to make you successful.

We always suggest creating a Zero-Based Budget. This means you are taking all of your monthly income (or income for that pay period) and assigning every dollar to a line item leaving you with “0” in the bottom line. This does not mean that you no longer have any money left in the bank or going to savings (because in the savings line, you are hopefully contributing here!), it just means that you have assigned every dollar in your income a “job” for the month. The dollars are either going to savings, housing, utilities, groceries, car payment, eating out, movie nights, etc., etc.

Next, you need to TRACK YOUR EXPENSES. I can not stress this step enough. Yes, doing the homework (statement autopsy) and planning your budget column is important, but all that work means nothing if you are not seeing how much you are truly spending in these areas each month. You could be “putting aside” $800 a month towards groceries, but what if you are spending $1000? Or what if you are budgeting for certain amounts each month, but then go over five budgeted amounts (line items) by about $50. That’s $250 you are not accounting for coming out of your income, consistently. This in the end will affect your savings, or how much you can put towards debt.

I always tell coaching clients, that there’s no reason to meal plan if you don’t meal prep, and cook the meal you are scheduled to make that night. You have to do all of it to be successful and see results (plan, prep, and then cook the meal).

By setting up your budget to include a planned column, and a tracked expenses column, you can set up the third column to calculate if you are over or under your planned amount. This will allow you the ability to go into your budget and adjust amounts accordingly so you don’t go over your monthly income total.

Budgets are not cookie cutter

Not only is every person’s budget going to be different, but every month’s budget will also change. Just like every month in your life brings something new (birthdays, holidays, vacations, special events, etc.) your monthly budget will have new items added or taken out of it that you will need to adjust for these changes.

The foundation of your budget will not change, but you will have fluctuation some months more so in other areas. Being diligent and aware of these upcoming expenses makes you more responsible when planning, which in turn makes you more successful to achieve your goals.