How I Write My Monthly Budgets

October 7, 2013
Money Jars

If you’ve been visiting my blog for a while, you know there’s one week every month where two of my posts will include budgets: one for the month that just ended and one for the month ahead. Last week was one of those weeks. I’ve been writing these posts regularly since November 2011, with only the odd month or two missed. Two years later, I finally realized I’ve never actually explained how I come up with the numbers in my budgets. I went to my Facebook page and asked if anyone wanted to read about my budgeting techniques. Your replies inspired today’s post.

The first thing you should know is that I’d never written a budget in my life until November 2011 – months after starting this blog, the name of which stated that I was apparently on one! I knew what a budget should look like but I had absolutely no idea how to write one (or stick to it!). Two years later, I can write a monthly budget in 20 minutes or less. Here’s how:

1. I Track My Spending

It shouldn’t come as a surprise, considering that the “Actual” column in my budget shows how much I spend each month down to the penny, but I’ve been tracking my spending for more than two years now. I have tried all kinds of techniques for this (cash only, the envelope system, etc.) but what works best for me is making the majority of my purchases with a card (usually debit, now sometimes credit). Every Sunday night, I look online at my chequing account and credit card transactions, add up what I’ve spent on each category of my budget and update the totals in the “Actual” column. By subtracting the “Actual” amount from the “Budget” amount, I’m able to see what’s “Leftover” for the rest of the month; this helps me stay on track, especially when I’m in the mood to shop and know how much (or how little) I have left.

2. I Write Realistic Budgets

Here’s where the “Budget” numbers started coming from. When I first started tracking my spending, I did so for 3 months straight – and by hand! At the end of the first month, I looked at everything I had spent my money on and came up with a list of potential categories for my first budget. For the second and third months, I kept a separate piece of paper for each of those categories. At the end of the three months, I added up the three monthly totals for each category (i.e. Gas) and divided the total by 3 – this gave me the average I spent on every category each month. Once I had the averages for each category, my first budget basically wrote itself. For example, if I had spent an average of $145 on gas, I allotted $150 for gas in my budget. Doing this for each category not only made my budget easy to stick to, it gave me a sense of accomplishment every time I was able to finish a month and see that I had stayed on budget.

One important thing I forgot to add before I hit “Publish” on this post is the fact that I don’t practice zero-based budgeting. With zero-based budgeting, the balance at the bottom of your spreadsheet is the exact amount you take home each month. I budget for a little bit less than what I take home each month and I do that for one major reason: it gives me breathing room. Breathing room gives me the opportunity to keep a little bit of money in my chequing account at all times and it also lets me pay for unplanned expenses. What if my car needed an unexpected repair? Or I lost my wallet and needed to replace my IDs? What if, what if, what if – life is full of them, because things happen! By budgeting for a little bit less than what I make, I have room to go over budget if needed – or to just add another category if something unexpected comes up. This type of budgeting doesn’t work for everyone but it works for me.

3. I Plan Ahead and Change My Budget Accordingly

So that’s where my “Budget” amounts came from at first, but the most important part of budgeting is to plan ahead and change your budget accordingly. My budget fluctuates monthly, depending on what my savings goals are and whether or not there are any new categories I may need to add. For example, my October budget needed a new category for moving expenses. If I have a couple birthdays to celebrate, I’ll add a category for gifts. If I want to get my hair cut or highlighted, I’ll allocate more to my Personal Care budget. And whenever I decide to start saving for Christmas or a vacation, I simply add it to the budget. I don’t follow any of those budgeting systems out there that you hear of, like the 50/20/30 rule or the one that says no more than 15% of your budget should be going towards debt repayment. In my eyes, budgets are part of what make personal finance so personal – you have to make yours work for you!

Anyway, that’s how I write my monthly budgets. I could go on to explain how I get paid twice each month and what I do with each paycheque, but that’s probably TMI (too much information). Or maybe not? I’m always happy to talk about the numbers you see here, so let me know if you have any questions. And come back on Wednesday, because I’ll be sharing a blank template of one of my monthly budgets and talking about how you can make it work for you.

Do you write a budget each month? If so, how did you start? And if not, what’s stopping you from trying?

  • moneystepper October 7, 2013 at 4:19 am

    Great post! So many people don’t start a budget because they don’t know where to start! Hopefully this will inspire people to start their own budget.

    I have a geeky monthly budget in geeky Excel with lots of geeky graphs, because I’m a geek!

    • Cait October 7, 2013 at 4:54 pm

      LOL! Mine’s definitely not geeky enough, but simple = easy. I need easy!

  • liliane October 7, 2013 at 4:35 am

    I do a budget and also have tried money jars , envelopes but now I do debit transactions and budget with a quicken program which I am obsessed with.
    After reading Gail’s book I quickly started the jars I and paid cash for everything but I ended up switching to debit transactions.
    I rarely use cash but when I do I don’t track it so maybe $20-40 goes to cash monthly. I could improve on this….
    We have no debt except the mortgage and now I’m trying to get my emergency fund to an amt I feel comfortable with.
    I love your blog and try to read as many blogs possible to stay on track. Love seeing other peoples budgets also.

    • Cait October 7, 2013 at 3:51 pm

      How wonderful that you only have your mortgage left to pay off! I’m sure it does “feel” wonderful, but I just remember the days of having to pay 3, 4, 5 people/companies before I could pay myself on payday. It’s great that you read lots of blogs to get an idea of how other bloggers budget, too. I know that what I do wouldn’t work for everyone and I do believe that budgeting is what makes personal finance extremely personal. I like to think I’ve taken a little bit of advice from everyone and created something that works for me. Everyone should do the same :)

  • Rob October 7, 2013 at 4:49 am

    Yep Cait, I keep a monthly budget (have been for over 40 years, starting right after I graduated from uni and was in my first job) and I still track my actuals by hand.

    Rather than using a debit card I prefer to use a cash back rewards credit card to pay for most of my expenses (even the big ones), which I pay off in full each month. I prefer this approach because:
    1 – I get usually at least a 30 day grace period before I need to pay for any specific charge, allowing for some payment flexibility, and
    2 – my cash back reward gets applied yearly in December, which is convenient for Christmas shopping bills.

    Since many prices reflect the cost that merchants have to pay to the credit card companies, I figure that I may as well be taking advantage of the rewards available for credit card use.

    My budget categories usually remain constant throughout the year, and year to year. I don’t change it much for things like gifts needing to be bought but rather factor into my savings strategy to put aside a little money towards that future expenditure.

    The other thing I do is record my budget categories, actuals spent against each, along with the variances (budget vs actual) in a spreadsheet, year to year, and at year end review the variances and trends to determine how things are going and what may need to be adjusted up or down.

    This approach has worked quite well for me over the years.

    • Cait October 7, 2013 at 3:55 pm

      “Since many prices reflect the cost that merchants have to pay to the credit card companies, I figure that I may as well be taking advantage of the rewards available for credit card use.” You sound like my dad! He’s slowly convinced me to do the same, so I got my first rewards card last month and am just starting to feel more comfortable making purchases with it (blog post re: that to come soon!).

      I really like the idea of putting together a spreadsheet that holds my annual expenditures. Since I have two full years’ worth of budgets now, I’m sure I’d be able to see some trends already! Thanks for the idea, Rob.

  • E.M. October 7, 2013 at 4:54 am

    You have a great system that works for you! I never really budgeted before I moved out of my parents house, as I didn’t have too many bills besides my cell phone and student loans. However, to see how much rent we could realistically afford, both my boyfriend and I simply added up what needed to be paid each month, estimated groceries, and then subtracted the expenses from our monthly income. I’ve mostly been doing the same now – I keep track of my income and my expenses and see how much I’m left with at the end of the month. My budget is pretty flexible, though, as I have my spending under control. I more or less use it as a reference.

    • Cait October 7, 2013 at 3:58 pm

      But you also bring home a really great point and that’s that even people with good spending habits should try to keep a budget! Knowing where your money goes is so important, as it’s your second most valuable resource – the first being time. Thanks for sharing what works for you, E.M. :)

  • firebelly October 7, 2013 at 6:54 am

    I have a running spreadsheet that has been my budget for years. It started out as just a list of my bills for the month and a way for me to keep track of whether I paid them or not and evolved into a spending plan.

    The tool hasn’t been perfect in the sense that I never REALLY tracked my spending of things that weren’t bills and I have consistently underestimated how much my family spends on food each month. SO…for the last few months I have been tracking my spending on an app called “EasyMoney.” Every time I purchase something (whether its debit, credit or cash – the app keeps track of that for me) I enter it into my smartphone. The app keeps track of my spending categories and lets me establish budgets for particular things like groceries, which is the thing that seems to get out of hand. I’ve tried a few apps and the one that would be perfect is the Toshl app but it requires a monthly subscription. Urgh.

    I’m also realizing of late that I have never really saved money for expenses that are irregular but still pretty predictable – like contacts for my girls or school fees that pop up every September or oil changes. So I’ve been calculating how much I would need to save each month for that.

    But there are still things that come up that I really didn’t expect and have a hard time predicting – my coworkers invite me to lunch or my daughter drops her phone and it shatters. Not exactly sure how to plan for that stuff. Zero based budgeting seems to put you at an disadvantage for things like that.

    • Cait October 7, 2013 at 4:00 pm

      Yes, it certainly does – unless you increase how much you save for “the predictables” and take it from there?

      Thank you for mentioning zero-based budgeting; I updated this post to reflect that I do NOT do that.

  • Girl Meets Debt October 7, 2013 at 9:08 am

    Great tips Cait! I do my own version of zero-based budgeting as well and I think it works fab! :)

    • Cait October 7, 2013 at 4:01 pm

      See! You budget! You don’t think you do… but you do. :P

  • Tara October 7, 2013 at 1:25 pm

    Great post! I’m looking forward to seeing your budget template on Wednesday :)

    I’m not following a budget right now, mainly because I don’t know where to start (I’m currently living in Paris, using funds from a Canadian student line of credit and freelance writing jobs, but paying almost all of my expenses in euros). Transferring funds between Canadian and French accounts can be a *bit* of a headache.

    Once I start my internship this month (and I have a regular euro deposit), I’ll be able to create my first budget (I’m excited!).

    • Cait October 7, 2013 at 4:03 pm

      Good luck w/ your internship and w/ creating your first budget!

  • Kirsten October 7, 2013 at 6:02 pm

    Great post! I started a spending diary a year ago, logging every single penny I spend, with the goal of never spending more than I made in a calendar month. But this October is my first month with an actual budget — forecasting my spending in every category. I’m nervous about this budget, though. What if I go over in a category, or there’s an expense I didn’t think of? Is that a failure?

    • Cait October 8, 2013 at 5:49 pm

      I don’t consider that a fail at all! Tracking your spending is the win, as is learning why you went over budget one month and thinking of how you can update your budget to avoid repeating that mistake the next month.

  • dojo October 8, 2013 at 11:37 pm

    I’ve been tracking my spending since Jan. 1st. I use AceMoney, a computer program that takes into account ALL the things I pay for. It really helped me see where our money is going and see what we can improve.

    This month I also started keeping a budget. Looks like it’s unlucky, since we had unexpected expenses that already amount to 50% more of the money I planned on spending. Maybe next month will be luckier :)

    • Cait October 9, 2013 at 8:31 am

      But isn’t it nice to SEE that it’s going to go over by that percentage? I mean, that’s a big chunk… but you know the exact numbers that will be going in/out and you know what you’ll need to do next month to make up for it. You have all the power, just by knowing those numbers. :)

  • Lisa E. @ Lisa Vs. The Loans October 9, 2013 at 9:59 am

    I’ve been operating under a zero based budget for a while, but might switch since I feel like I need a little cushion. Lately, I’ve been cutting it really close and it’s not fun!

    • Cait October 9, 2013 at 10:19 am

      It is DEFINITELY not fun. I don’t give myself a huge cushion, but just enough that I don’t need to stress about every last dollar I have.

  • Melanie S. October 15, 2013 at 7:22 am

    I’ve had a budget for quite some time and I would track all the bills that would come up. So it would change from month to month depending on what I needed the money for (Gifts, license plate sticker, etc). I’ve tried keeping track of my money but I don’t find it sustainable. I do know where my money goes where it shouldn’t, it goes to eating out and unnecessary items. I also tried using the envelope idea, instead of jars, and I would put cash in them for each category. But I found that didn’t work for me, I could never stick to doing it and If I had like a $20 bill left in my groceries, rather than being proud I didn’t spend it all, I would use it anyways just cause it was there.
    I’ve now concentrated on ‘No Spend Days’ and thinking about every purchase carefully. That has been more sustainable for me.

    It definitely takes trial and error, what works for me may not work for others. I’m very close to getting out of debt but I’ve decided to get rid of my new car that I’m leasing so I need to spend some money to fix the bumper (hit and run) and pay for the transfer fee. Then I can officially put my debt at zero minus the mortgage.

    • Cait October 21, 2013 at 9:45 am

      Sounds like you definitely have a system that works for you! Congrats on almost being out of debt :)

  • firebelly October 21, 2013 at 7:43 am

    Cait – sounds like you don’t do zero-based budgeting but you have an “everything else” category that includes food. While you don’t put on paper what the subcategories might be and allot a certain amount of money to them, I’m thinking you must have some way of limiting / keeping track of what you spend in that category because that money has to last for two weeks or a month and you have to be able to have money for food for the entire period until you get paid again. So, how do you account for that?

    • Cait October 21, 2013 at 9:42 am

      What’s the “everything else” category that includes food? I’m confused. If you looked at one of my monthly budgets, I think you’d find the answer to that question.

      As I mentioned in this post, I came up w/ most of my numbers after tracking my spending for 3 months straight and then finding the average amount I spent on each thing. So, I have $200 for groceries and $100 for restaurant. I also sit down every Sunday, add up what I’ve spent so far and add it to my monthly budget; this lets me see how much I’ve spent so far and whether or not I’m on track. If I can see I’m close to going over budget on one category, I’ll just stop myself from making some other purchase(s) for the rest of the week/month. Hope that helps.