It’s Your Money: Let’s Talk About the B-Word (Budget!)


NEW: Inflation, caused in large part by the COVID-19 pandemic and supply chain issues, has not gone away and likely won’t for some time.

WHAT IT MEANS FOR YOU: Everything costs more!

The average consumer can’t do much about inflation. (Pro tip: even voting a certain way won’t diminish it, as it has very little to do with who’s in power). The only thing you can do is find ways to manage your money.

If you feel you’re managing your money well and don’t need more tips, that’s fine. You can move on. But the sad truth is that about two-thirds of us aren’t. Almost every source that monitors the topic says that only about a third of Americans have and follow a monthly budget.

Yes. The B-word. Whether you want to hear it or not, it’s inevitable that a budget will be the foundation of your household’s money management. Reasons (or excuses) for not budgeting range from lack of time, feeling that it’s not necessary because you bank online or don’t use cash, it’s too hard to follow, that you’re so far down the hole that it’s no use, you’re just not one to budget – you name it.

But there really is no good excuse or reason not to budget. The thing is, if you have a monthly budget, you are doing the first thing that will help ensure that you can pay your bills and other expenses, and even have extra money to spend each month. Or, at worst, see where the problems are and get the information that can help you work towards a more stable financial life.

Most people cringe when they hear the word budget, so let’s break it down into easy, digestible bites. This may all be obvious, but often people just need to see it clearly to do it. Right?

What is a budget?

Don’t be afraid of the budget. A budget is simply a record of how much money you receive each month, what bills you need, what other expenses you have, how much money you have left, and what you will do with it. The important thing to keep in mind is that it is interactive. He doesn’t just sit there and cage you and your money. This is something that you monitor monthly, depending on how your situation develops. He doesn’t control you – you control him.

What’s the easiest way to keep a budget?

The easiest way is the one that will keep you engaged. This will ensure you work on it every month and stick to it. It can be as simple as a notepad and pen or a Google doc. You can use a spreadsheet, a phone app, or anything in between.

The reality is, however, that nothing will do the job for you. When you first put it together, there’s no way to avoid the task of collecting and sorting all the figures. Even one app requires you to do this (and can be even more upfront work, as most involve linking all your accounts).

The most important thing is to do it in a way that matches your work habits and your way of thinking, so that it’s less of a chore and more something you can understand and control.

What’s in a budget?

The main features of a family budget are:

Income – How much money you get each month from employment, child support, side gigs, anything else. It’s not a legal document, so don’t be afraid to put any source of money you have. It will not be assigned or requested by the IRS.

  • Necessary fixed expenses – These are the bills that you pay each month and whose amount is predictable. They include not only your utilities (power, heat, cable, internet, etc.), but also health care premiums (if your employer doesn’t cover them or you work for yourself), car insurance , home insurance, mortgage or rent, loan payments, car payments, etc. This also includes credit card payments, although they may change – there is always a minimum payment that is required to pay.
  • Necessary expenses not fixed – These are the necessary bills that you have much more control over, such as groceries and gas for your car.
  • Discretionary expenses – These are the things you really don’t have to spend money on, but choose to, like food and coffee to go, extra shoes and clothes, books, online streaming subscriptions continuous, club memberships and more. You could do without these things if you had to.
  • Basic expenses – These are expenses that come out of your discretionary accounts that you should have, but probably don’t if you live paycheck to paycheck. (And if you’re not, step up a gear and do this). This includes monthly payments into an emergency fund that should grow to cover your expenses for several months; a family fund for contingencies like the furnace going out; and a pension fund. You can also add a holiday fund or a boat fund or whatever, but not after you have those first three.

Be honest about your spending and don’t overlook anything. No one will judge you. You may have avoided writing down all those numbers because you know the math will be lousy, especially if you don’t make a lot of money or have a lot of credit card debt. If that’s you, it’s time to face the music. I can’t stress enough – you are the boss, not the money. You’re in control, and that’s the first step to solving problems that won’t go away on their own.

But what is the best way to keep a budget?

The best budgeting methods track when money comes in, how much, and when things were paid for. There are many ways to do this, from simple writing to spreadsheets to applications. The best way is one that will keep you on track rather than being a chore you avoid.

I use a Google doc, where I show incoming money in black, bills that are scheduled online to be paid in orange, bills that I physically have to pay myself in red. When the payments show that they have come out of my bank account, I change the orange or red to green. It’s funny! There’s nothing like seeing a month of “greenbacks” and still having money in my account.

How can I understand unfixed and discretionary things? It’s different every month!

Modern technology has made things so much easier when it comes to tracking expenses. Gather your bank and credit card statements (they’re all available online), get a highlighter, notepad or whatever, and go through three to six months. Separate the different types of expenses by classifying them into three categories of expenses: fixed necessary, non-fixed necessary and discretionary. Divide each category by the number of months you have collected. This will show the average monthly amount for each. Obviously, the more months you look at, the more accurate it will be.

If you use cash to pay for things, you’ll need to keep track of your cash spending for several months to get a good idea. Don’t wait until you’ve done this to start budgeting. Give yourself a good stage to start with.

What happens after I have done all these calculations?

Take a hard and serious look at what you spend money on. Some things probably can’t change, at least for now. These include expensive items like housing and your car.

But, come on, you know there are places where you can cut your expenses. It’s tough in many cases, but if you’re running out of credit cards or can’t feed your kids, get gas in your car, or heat your house, it’s worth it.

There may also be ways to increase your income, although we both know that if it was easy, you would have done it already.

[We’ll talk more about realistic ways to cut expenses and increase income in November].

But what should I do monthly with my budget?

Tracking is essential, because in addition to assessing your expenses, budgeting also helps ensure that the necessary bills are paid.

Set up automatic payments on as many invoices as possible. If possible, set them all for the same date or pay period, so you know when they will come out of your account. The first day of the month, for example, is easy to remember. This includes credit cards – set up autopay for a specific amount above the minimum payment or the minimum payment if you can’t afford more. When you have extra money, make extra payments during the month (see This is your January money column for more).

Make sure you have the money in your account to pay the bills when they come in (budgeting!).

One way that works well is to have one checking account for bills and another for everything else. If you are paid by direct deposit, have the salary paid into this account, then transfer the discretionary money to the other account. Or, better yet, have your salary paid into a second account and transfer the money from the bill to the billing account where it won’t be touched by anything else.

If you really want to have fun, make all your streaming and other subscriptions come from a third account just for them. A great way to do this is with a low-limit, low-interest credit card account that you pay off monthly. It’s a great way to keep track of your streaming and other digital subscriptions.

Having a bunch of separate accounts is kind of a modern take on the “envelope” method of budgeting. In the past, before digital banking, people who used this method cashed their paycheck and then put the amounts in envelopes for certain bills. There are also apps and software that follow this method, but you still need to link all your accounts and do some work to make it work properly. You will probably find that moving the money yourself is much more efficient. Most banks allow multiple accounts at no additional cost, and transferring money between them is seamless.

Can I change my budget?

Of course you can! You are in control. A budget must change. If your expenses go up or down, your income changes – whatever the adjustment, make it within your budget. You will begin to have a clear picture of the money coming in and going out and how you control it.

Budgeting can seem like “too much work”. Or you might want suggestions on how to pay less NOW. The reality is, however, that you are an adult in a complicated world. There is no simple solution or workaround for determining your household budget. It’s up to you to make good things happen financially for you and your family, and that’s the start.

NEXT MONTH: If you’re looking to increase your income or reduce your expenses, you’ve probably had enough of all the advice online. Get a side job! Eliminate one Starbucks coffee per week! Next month, we’ll look at concrete ways to reduce expenses and increase income.