How do I budget? Part 04

In this series of posts, I am sharing the process that Jenn and I followed to develop a budget that actually worked!

Here are the steps that have already been shared.

STEP ONE  Understand that budgeting is nothing more than "telling your money where to go"

It is so important to tell your money where to go – instead of wondering where it went! 

STEP TWO  Determine the income (take-home pay) you will receive during the NEXT month.

This income is what you will be spending on paper BEFORE the month, the money, and the bills ever arrive! 

STEP THREE  Enter all of your expenses for the NEXT month.

Enter ALL of the real actual expenses that will need to be paid NEXT month into your budget form.


Your income is limited.  If you bring home $3,000 during the next month and spend $3,208, your spending plan will not work!  Where will the $208 come from?  It will have to come from savings OR from debt – usually in the form of a credit card.

YOUR INCOME IS LIMITED!  Let me take it one step further.  Let's say you are really blessed and bring home $70,000 during the next month (don't laugh – many people do!).  If you spend $71,320, your spending plan will not work!  The $1,320 will have to come from somewhere – and many times it is made up with debt.

In STEPS TWO and THREE, we entered all of the income and expenses into the budget and, no surprise, the OUTGO exceeded the INCOME.  You can see the entire budget HERE.

There are two options when the OUTGO exceeds INCOME:

  1. Increase the INCOME – 2nd job, Overtime, side job
  2. Decrease the OUTGO – Decrease the expenses

In this budget, let's say that this family receives salary.  They cannot quickly increase their income, so they are going to focus on reducing their outgo!   They need to eliminate $320 of spending.

NOTE:  This is not a "perhaps, perhaps, perhaps" type budget!  This is how the family will ACTUALLY spend their money next month!  Remember – if your budget is not 100% relevant to you and your family THIS MONTH, you will ignore the budget and use it to start a fire in your fireplace!

What expense can they eliminate?  Again, you can pull up a copy of the budget HERE.

After working together on their budget, the family decides on the following changes.


If you want to see the entire EXACTLY ZERO budget, you can view it by clicking HERE!

You might be saying, "These people are CRAZY!  They cut out 1/2 of their dining out, entertainment, blow money, and all of their babysitting money!  They are crazy!"

I would say – "NOPE, they have had enough.  They are so sick of living paycheck-to-paycheck that they are willing to live differently and change their lives forever!  All because of a little sacrifice now!"

Jenn and I prepare a written spending plan every single month before the month begins and before any of the money gets to us.  This is THE REASON we have won with money.

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  1. » on October 25, 2007 at 12:58 pm

    […] How do I budget? Part 04 […]

  2. Moneymonk on October 25, 2007 at 1:42 pm

    So where do you get the money to live between paychecks? such as gas, and other stuff

  3. nadine on February 28, 2011 at 7:31 pm

    How can you budget money you dont have. Your bills outweigh your money these are your everyday bills.

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