1 Million Dollars

Monday, September 26, 2011

Budget, How to Make One?

There are so many ways to make a budget and no one way is wrong. Making a budget is, like anything in personal finance, personal. Some people just put away a percentage of their income and spend the rest. Others make maximum percentages per category, for example 25% of net income towards housing.

But when you are starting off the best way to start is to figure out where the money is currently going. Start by taking a month and writing down everything you spend and by the end, you have the beginnings of a budget. But you won't be done there. There are many annual or semi-annual expenses people forget about, like Christmas or car insurance or even car repairs. Start with the monthly expenses and divide what annual or semi-annual expense by 12 or 6 months and put that in your budget as well.

Now, the big question is after all your expense do you have any money left over? And if so, how much? If it is 10-20% of your income, great! If not, you are normal and it is ok. But you do need to work in retirement and emergency savings into your budget. That means looking at your other expenses in your budget and finding ways to cut them down.

It took me about two years to get my budget and my spending the way I wanted them and I still have some improvements to make. Making a budget is not something you do once and forget about, it is a tool for most of financial life.

Do you have a budget? Do you think it is helpful or not? How did you make yours?


  1. I have a budget and I think it's extremely helpful. I started it by first tracking my expenses and then finding ways to cut it. We try doing the percentage based budget.

  2. It is all depends, what you are doing with your money. For example, no money left, but you have invested heavily in paying off mortage and pension plan.

    I do keep, not some much budget, but rather what we spend and how we did it. It makes very interesting reading at the end of the year.

    I do publish final results on my website (last four years are availble). Where is yours?

  3. I can never stick to a budget. Any tips?

  4. @FI, I prefer not to post my budget on here given that some friends and family know of this blog.

    @Rochelle, Start with writing down all you spend and then pick one part of your budget to cut, for example eating out or grocery shopping. Making and sticking to a budget will take time. It took my husband and I about two years to keep to our eating out budget.

  5. I do keep and regularly public my budget. Over last four years it allowed us to achieve great understanding - where the money go and concentrate on important.

    For example, if we know that we spend on gas 160 dollars a month, we would not be worrie, should they raise 20%, it is just additional 30 dollars a month. In comparison with the rest of the budget, it is less than 1% a month.

    The most important thing is to keep eyes on the ball - are we getting there - towards our financial independence or not. Last year there were average - i.e. on track with no breakthroughs.

    I think you we have financial goal, it is must to have. On the other hand many people do not have them and live very happy.

  6. Ultimately the hardest part of any budget is following it. It sounds like you hit that stride in your routine where you are keeping up with it. Way to go! :)

  7. I try to save both on the top line and the bottom. So we budget less than our take home, with money going automatically into invesments off the top (in addition to retirement). We then budget so we have an additional amount left over at the end. Some people call us "cheap" but that's OK. We enjoy our lives quite a bit and know we're going to be OK when we're old. :)