Guide to Start a Budget

Why start a budget or spending plan?  Doesn’t a budget mean you can no longer have fun and the freedom to do whatever it is you want to do with your money?  Not exactly!  In fact, having a budget will give you more freedom!

There are a several important reasons to start a budget you might consider before deciding a budget isn’t right for you.  Here are 5 reasons to start a budget you might consider:

Reasons to Start a Budget

1.  Achieve Financial Goals

First, if you have financial goals, as most of us do, you’re going to have a hard time achieving them without a monthly spending plan to help you stay on track.  If your goal is to become debt free, a monthly plan that determines how much money is to be allocated towards debt payments is critical.  Your spending plan or budget also helps avoid over spending. All that over spending takes money away from your financial goals such as savings, debt reduction and it also inhibits your ability to give.

2. Biblical Stewardship

Having a budget is a Biblical principle of Christian Stewardship. God expects us to manage his resources wisely. Over spending, not knowing where you money is going each month and certainly not working to reduce debt or achieve financial freedom isn’t God’s plan for your life.  God desires us to be free to serve him and not have the burden or worries that financial bondage brings with it.  If God expects us to be stewards, or managers of his resources, having a plan just insures we’re able to do a better job in managing them.

So then, men ought to regard us as servants of Christ and as those entrusted with the secret things of God. Now it is required that those who have been given a trust must prove faithful (1 Corinthians 4: 1-2)

3.  Reduces Anxiety

You’ve heard of people mention they’re stressed over not having enough money, or anxious about upcoming expenses.  There is often debt that makes the situation even more difficult.  Whether you realize it or not, having a plan reduces anxiety.  Why?  You no longer have to be concerned with how you’re going to meet those future spending needs (the cause of the anxiety) because a plan, or a budget, provides you the opportunity to make decisions about how you’re going to use your money.  At the end of the day, it’s your choice as to how you’re going to spend the money.  So, creating a purpose for every dollar at the beginning of the month is the key to reducing stress and money issues.

4.  Improves Communication in Your Marriage

A budget can also serve as a communication tool and a way to insure both you and your spouse are on the same page with how money is going to be spent.  Have you ever been in the situation where both you and your spouse unexpectedly spent a large sum of money without each other knowing about it?  It might even have caused you to overdraw your checking account.  This often occurs because there isn’t a plan in place in which you both create together and communicate about every month.

5.  A Budget Sets a Good Example

Finally, as your children get older they may have the opportunity to participate in the family finances.  After all, money doesn’t grow on trees and they need to start learning that fact from an early age.  One of these days you may want to sit down with your teenager (or even younger child) to walk them through your plan.  Show them how you save and give money.  And definitely show them you have limited money for entertainment purposes!  :)

How to Start a Budget

In a few steps you can start a budget to begin proactively planning and creating a purpose for each dollar in your wallet.  There is plenty of great personal money management software available to start a budget and track personal spending. However, if you’re just getting started you may want to write out your budget using a budget form because you’ll be making a lot of changes.  You can then create your budget using your software of choice.

1.  Identify Spending Categories

What spending categories should you include in your budget?  The below basic categories are helpful to include in your budget because they cover most of the major spending categories most people encounter each month.

You can also add subcategories later if you want to be more detailed in the tracking of your spending.  However, the rule of thumb is to not add categories or subcategories that don’t help you in managing your money.  In other words, it may not make much sense to track the vegetables within the food category or shirts within the clothing category.  It’s just too much work and provides little value. Hopefully, you get the idea.

  • Giving: tithing to your church or giving to nonprofit organizations
  • House: electricity and utilities, TV and other expense for your home
  • Food:  grocery store shopping
  • Auto:  auto insurance, gasonline, oil changes, car payments
  • Insurance:  life insurance, medical insurance, dental
  • Debt:  credit cards, student loans
  • Entertainment:  dining out, movies, vacations, blow money
  • Clothing:  seasonal clothing needs
  • Savings:  emergency fund savings, new car savings,
  • Medical:  over-the-counter medications, doctor co-pays
  • Miscellaneous:  anything that doesn’t fit into another category
  • Investments:  investments outside of 401k which may include an IRA, Roth IRA, etc.
  • School/Childcare:  Pre-school and other school related expenses

2.  Estimate Spending Categories

Keep in mind your first budget is an just an estimate. Actually, all budgets are an estimate, but the first budget will most likely require some educated guessing.  Once you’ve tracked spending according to your budget categories for a few months, you can make changes where you may have estimated too high or too low.  In doing so, your budget will more accurately reflect actual spending behavior.

Obviously, some categories are easy to estimate with a little bit of work and organizing. For example, you can add up all of your electric bills for the last year and divide by 12 to get an average.  However, it may be difficult to determine how much is spent at the grocery store each month and without tracking historical spending it’s difficult to determine an accurate amount.

Here are a few tips to help you estimate your spending categories for your initial budget:

Start Tracking Spending

As mentioned, it’s helpful to begin tracking your expenses whether or not you have a budget created. A good way to track, if you’re not using personal money management software, is capture the total expenditure by day for each of your budget categories. Hint: you can easily do this in excel or using a sheet of paper or notebook. At the end of the month you will be able to quickly total all spending for each category and compare to your budget estimates.


For variable expenses such as your electric and water bill, find the last 12 months and divide by 12 to get an average amount. This is a pretty accurate approach because some months will be higher or lower depending on the season; however, you should be able to use the savings from the lower month to pay for the higher month.

Seek Suggestions and Get Advice

There are budget guidelines available which can be helpful for a couple of reasons. The guidelines can provide a good starting point to get a ball park amount based on the percentages provided. The guidelines can also help in reviewing your budget to determine if you have spending problems. If you’re grossly out of line with the guidelines, you may have a problem in that particular area which needs to be addressed.

I believe it’s best to treat them as what they are, guidelines, and visit with a counselor to discuss what is appropriate for the size of your family, income and area in which you live in the country. For more on guidelines and a good place to get started, I think Crown Financial Ministries has one of the better spending calculators  I’ve come across.

Make an Educated Guess

Don’t become frustrated. If you’re starting a budget, you’ve taken a giant step in the right direction towards financial freedom. I think its okay to use a little bit of logic and conversation with your spouse or friends to come up with an initial amount for each spending category. It’s your first budget and it won’t be perfect. However, it’s okay; because your future tracking and or use of guidelines will help you fine tune it in the long run.

3.  Prioritize Spending Categories

Determine your spending priorities:  on a separate sheet of paper list all your spending categories and prioritize them by placing needs at the top of the list.  Examples of the most important needs include food, clothing, shelter.  Work with your spouse, if married, to make decisions on other expenses such as entertainment, house cleaning and other services that are not necessary for survival.  You’ll revisit this list if you need to make some spending cuts to balance your budget.

4.  Use a Budgeting Form or Money Management Software Software

Identify budget software or form that includes the ability to track spending by the common categories. Crown Financial Ministries has a good budget form that has all the categories mentioned above.  You can download the form and write out your budget.  You can also use a wide variety of personal money management software, such as YNAB  (You Need a Budget) to start a budget and track your spending each month. Use your chosen tool to enter your all the monthly expenses you previously estimated for each spending category to create your initial budget.

5.  Balance Your Budget

Subtract total expenses from your net income to see if your budget is in balance.  Income minus expenses must always equal zero because you’ve determine a purpose for every dollar in your budget.  The nice thing about a budget is that you’re either forced to cut back spending in certain areas or get creative and allocate extra income to spending categories to balance it. Don’t worry, your initial budget probably won’t balance. Going through the process of prioritizing spending (using the list you created above) and allocating money to different categories may take a few tries.  But you’ll eventually have a reasonable budget that reflects your spending needs and financial goals.

If you’re balance is negative, reduce the estimated spending category amounts starting at the bottom of your priority list.  If you have a positive balance, allocate the extra money to a spending category (savings or giving suggested).  If you find you need more money for a spending category in a certain month, such as food (maybe you had a guest in town), you must take money from another spending category to meet that particular need to keep your budget in balance.  This is called actively managing your money and is easiest to do throughout the month if you use money management software.

Track Personal Spending

Now that you have a budget, it’s also important to know how much money you have left for each of your spending categories throughout the month.  The good news is tracking personal spending can be easily accomplished in just a few minutes per day.

Whether you set up your budget using money management software, a spreadsheet, or hand written on paper, you need to have some mechanism to track spending for each of the budget categories you’ve established.

There really isn’t another way to know how well you’re doing against your budget or spending plan and the balance of each category unless you actively track your spending.

Follow these simple and painless guidelines to track your spending throughout the month.

Guideline #1:  Tracking personal spending is not a substitute for balancing a checking account or reconciling transactions with your financial institution.

Why?  Your bank accounts tell you the balance of your accounts based on the transactions the bank has received.  Your budget tracking tool (software or other) tells you the balance in each spending category according to the transactions you’ve entered.  The balance of your bank accounts and your budget tracking tool must always be the same.  In other words, the sum of your budget categories should always equal your bank account balance.

Just remember, don’t neglect your bank account balances because you’re now entering transactions in your budgeting tool.  If you’re using money management software you can easily reconcile transactions with your bank.  Some software makes this simple by automatically downloading transactions from your bank so you can assign them to budget categories (you don’t have to manually enter them).  You’ll never miss a transaction and can be confident you have all the transactions your bank also has.  It’s sort of like tracking your spending and balancing your checkbook at the same time.

Again, some people prefer the manual approach to tracking personal spending.  The budget spending form from Crown Financial Ministries, previously mentioned, doesn’t provide the benefits of software described above.  However, sometimes it’s best to track spending manually for a few months to get your process down and to make sure you’re going to be diligent about it.

Guideline #2:  Try to set a few minutes aside each day to update your budget tracking tool with your personal spending transactions.

By taking 10 minutes each day to track personal spending, you’ll have an updated balance for each budget category and can make better spending decisions.  All you need to do is capture spending as it occurs by either writing it down or keeping a receipt.  At the end of the day, spend 10 minutes entering it into the budget tracking form, or assigning spending transactions to budget categories if you’re using money managment software.

Guideline #3:  Reallcoate spending when necessary – actively manage your money

We already mentioned that some months you’ll spend more or less per budget category.  Again, you may have money left over for the food category.  Therefore, you decide to apply the extra money to a credit card bill.  Simply, transfer the money from food to debt and make the credit card payment.  Moving money around between categories is good proactive money management.  This can be most effectively done when you use money management software such as YNAB (You Need a Budget) which let’s you transfer money between electronic spending envelopes that serve as your budget categories.

Guideline #4:  At the end of the month, review your actual spending for each budget category in comparison to your planned spending.

Were you’re over or under in certain categories and if so, why?  Make any appropriate adjustments to your budget for the next month.  Making such changes to your budget helps your budget improve and become more accurate from month to month.  The sharper your plan, the more likely you’re going to be able to achieve your spending and saving goals.  Again, money management software makes it easy to run reports to review results for specific budget categories.  But, you can also get the results if you’ve done a good job manually tracking your spending with a budget spending form.

Guideline # 5:  The fewer the transactions, the easier it is to track spending.

If you’re able to withdrawal cash for food or other categories for the entire month, you only have to record one transaction in your tracking form.  Whereas if you use a debit card for every trip to the grocery store, you have to reconcile it with your online bank balance and record those transactions in your tracking form.  Pick a few spending categories and limit those only to cash spending versus using a debit card.  For example, you might consider using cash only for entertainment or blow money.  You can spend money on various things like a cup of coffee and not have to worry about recording the spending transaction; just the intial cash withdrawal.

What’s Next?

Well, hopefully you’re off to a great start budgeting and managing your personal spending.  Just remember, no one has a perfect budget. Budgets do take some effort to plan and manage, but investing a little bit of time will bring you all the benefits mentioned at the beginning of this guide and insure you’re managing your money, not your money managing you.

Contact me if you have any questions about this guide or are finding it difficult to start a budget.  I would be happy to answer any questions you have.