Budgeting Made Simple: 4 Steps

by | Mar 4, 2020 | Finances

How do we ever get on a budget? Why can’t I stick to it? What doesn’t my budget work? We felt that way for so long, but we made it work. We have now been on a budget for many years, and it’s working great and takes SO much stress out of our lives. Here is an article I’ve written to give you an overview of what we did in 4 steps. 

If you don’t spend it on purpose you are likely to spend it on accident. We all have good intentions but very few people are intentional and follow through (just think New Year’s resolutions; Pete Herschelman it’s time for your abs to come back; oh there they are, lol ). 

Step 1: First we need to tell the truth -to ourselves. 

The human capacity for self-deception is virtually unlimited. We lie to ourselves, we justify why it was a bad month, we don’t figure in all expenses (“Oops I forgot about that or; we don’t really do that very often”. If it happens once in 2 years, then it happens and needs to be budgeted), and then we say budgeting is hard, or, it doesn’t work. But the truth is we lied about what we are spending, or what our expenses actually are. 

The simplest way to tell the truth to yourself in your finances is by tracking every transaction and categorizing spending for the last 3 months.

It’s a great exercise for anyone regardless of whether they are feeling good about their finances currently or not. We found there is a lot of value in retroactive tracking for 90 days of all transactions in every account and total them all into categories on one sheet. Total each category up, and divide by 3 for an average spent per month over the last quarter and put the amount for each of your expenses down. 

Any expenses you did not have for the past three months, but you know you will have in future months, just add in (it’s going to happen). 

This is a revelation on the current state of the union of what you have done for the last quarter. 

The first step to change is awareness. It’s important to bring awareness so you know where your starting point is, and you overcome self-deception. 

It is not what you thought, intended, wanted, are going to do, etc. it’s what actually happened. 

Don’t use spending charts, any totals or categorization that may come from other sources, including your bank or other budgeting tools. These sources often categorize spending differently and they will not funnel all your expenses from every account (credit card, Venmo, etc) into one total. 

After you’ve done this important step then go to step 2. 

Step 2: Separate into 4 categories: fixed expenses, variable expenses, savings, and debts. 

Examples of fixed expenses (happen the same day every month). 

  • Rent or mortgage. 
  • Property tax if included in mortgage that’s fine, if not list separately
  • Utilities: Water, Gas, Electric, Garbage, Alarm, Home phone (if you have one). 
  • Tithing/charities 
  • Car insurances 
  • Life insurances 
  • Health insurances 
  • Dental insurances
  • Renters or homeowners insurances (man that’s a lot of insurances) 
  • Gym memberships 
  • Day care
  • Fuel and tolls 
  • Uber, Lyft, public transportation 
  • Internet access 
  • Cable/satellite TV (List internet cost separate from cable. If bundled call and find out what cost for each is). 
  • Cell phones: if paying for devices list that device payment amount separately for each device and total outstanding balance on each device. Then move device payments and total balance owed on device amount over to your debt section (keep reading it’s explained later). 
  • Subscriptions: Hulu, Netflix, amazon prime, ESPN, Disney, Apple Music, Pandora, Spotify, crunchy roll, iCloud storage, etc. etc. (all those pesky charges that we sometimes even forgot we are paying for). 

Examples of variable expenses: these happen different days of the month or happen some months but not every month. They “vary” 

  • Groceries
  • Dining out – (Pete and Rachael spent what?! Dude, what did you eat?!) 
  • Alcohol 
  • Cigarettes etc.
  • Car registrations- yearly amount divided by 12 months = monthly amount. 
  • Auto maintenance- list Car or cars: year, make model, approx. mileage. Then you have minimally (this is all based on how much you drive but project higher rather than lower-it’s always better to have money you don’t need than to need money you don’t have): oil changes (likely 4 times a year), tires (likely every other year), brakes (likely front one year back the next), misc. repairs based on your cars age (project a reasonable guess). 
  • Gifts: they always happen –create a graph to project what you will need to set aside monthly for all the gifts you will purchase for the year.  Put the amount you will spend per gift for each person in the box (add as many boxes as people you will ever buy a gift for). Don’t forget to add in miscellaneous events you could be invited to (It’s rude to not come with a gift in some cases). It’s impossible to predict how many events you will be invited to, but you can decide in advance to put a cap on how many you will attend for the year. For example, maybe you are okay going to up to 5 events a year, and you are comfortable spending up to $30 per gift.  That would read 5 X $30= $150. Add up all boxes and divide by 12 for your monthly gift budget. 

Gift graph project for the entire year (could look like this):

  • Cash withdraws all added up- where is this going? This one applies equally to Pete and Rachael
  • Entertainment: things like… movies, festivals, sporting events, PPV, concerts, round of golf, whatever. 
  • Haircuts: His and hers…. separate 
  • Nails: Rachael spent what on those? 
  • Eyelashes 
  • Massage 
  • Waxing services. 
  • Botox (surprising how many people spend money here) 
  • Kids sports fees, uniforms, equipment, etc. 
  • Clothes- his and hers and kids separate 
  • Pets: vet, shots, flea and tick, food, grooming, boarding, insurance, etc.
  • Health co pays
  • Dry cleaning/ or coin laundry 
  • Trips

(How much do Trips really cost?) 

1-travel to destination -plane, train, automobile 

2-Ground transportation while at destination- if you didn’t drive: Uber/Lyft, rental car, public transportation. 

3-Lodging- hotel, Aitbnb, etc. (with taxes and fees included). 

4-meals -it’s expensive to eat out especially while traveling. 


6-spending-souvenirs etc. 

7-lost income: money you could have been making while you were traveling. Not every trip will fall on a weekend or holiday. If you normally work M-F and you travel Thursday through Sunday then you have 2 days of lost income. You may have vacation time, but sometimes vacation time can be cashed in and that money used to pay down debts or build your savings, so it’s lost income.) 

  • Misc. home personal – paper products-tissue; paper towels; toilet paper, feminine products…

If there is a category not listed you need to add it in. 

Savings: amount you want to put away monthly. 

Debts: list them all- and list monthly payment required like so:

Car loan- $320/month (outstanding balance $12,251) 

Student loans: even if there is a deferment on student loans: call and find out when loan will be due, what payments will be, and what the total balance is. 

Any other money owed (Have you promised your mom you’d pay her back? Figure it in your budget). 

Don’t round the numbers- let’s get real.

Step 3: add it all up. 

Add up all the fixed expenses, all the variable expenses, all the minimum debt payments required each month, the minimum savings you want to put away, and voila you have your total cost to live each month. 

Most people have never done this and it will probably take several hours. But when you’re done you’ll “Know your number”, which means you’ll know exactly how your income is working. Then you can decide if you’re okay with things. If you are- then great you have a budget you can stick to. Just look up “cash envelope system” on the internet for how to keep your variable expenses in check. 

Step 4: If you’re like the rest of humanity you are not happy with what the totals say. Here are some options….

Route 1-what gets cut out and what gets cut down? (Do I really need Spotify paid ($10/month is $120/year not to listen to a commercial? That’s pretty boojee. And how much does Rachael Herschelman really love our dog? Lol jk). 

Route 2- Things to ask yourself: how many hours a week do I work? What do I make an hour? 

A. Work more hours. That means overtime or an additional job. 

B. Make more money per hour. That means get a raise or get a new job paying more (initiative and self image). 

C. Sell some stuff – raise capital one time to pay off a debt and the payment is no longer required so your budget just got that much better every month. 

D. Gap fillers-can you say GIG economy?! Today there are more ways than ever to have a side hustle until you pay off debts and don’t have to keep doing that. Just be careful that your side hustle doesn’t become your primary income (because you may not control it, the income can vary, and because you may accidentally become permanently reliant on it) unless that was your goal from the beginning. 

It’s up to you, but you can take control of your finances, or you can keep doing what you’ve been doing. 

That’s the overview of what we did. 

I’d love your comments on what you found helpful.