How Much To Budget

Mon, Jun 15, 2009

Taking the first step to organize your finances and create a budget can present some challenges. How do you estimate the budget amount for each spending category?

Some categories are easy to determine 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, some couples may disagree on how much is spent at the grocery store each month and without expense tracking history it’s difficult to determine an accurate amount.

There are a few steps to take to help with the initial estimating for your budget.

1. Track

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 finance software, is capture the total expenditure by day for each of your budget categories. Hint: you can easily do this in excel or on a sheet of paper. At the end of the month you will be able to quickly total all expenses for each category and compare to your budget estimates.

2. Calculate

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.

3. 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 guideline, 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 seen.

4. 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 category. It’s your first budget and it won’t be perfect. However, it’s okay; because your tracking and or use of guidelines will help you fine tune it in the long run.

I’m interested in finding a list of helpful guidelines or budget tools for people to use to estimate spending amounts that I can share with others. Also, let me know if you’ve written an article about this topic. I would be happy to review it and link to it within this article if I think it will help the readers of One Money Design GuideWise.