It’s All in the Budget

Learning how to budget is actually pretty simple. Budgeting simply means making sure that your expenses don’t exceed your net income. If you don’t know where your money is going, then it’s impossible to know whether you’re living within your means. That’s why it’s important to spend a month collecting all your receipts in an envelope, shoebox, or folder.

To figure out your income vs. expenses, you’ll need:

  • A pen
  • A notebook
  • A calculator
  • A copy of all your receipts, including checkbook stubs or bank statement and credit card bills

Begin by creating categories for your expenses. These may include:

  • Tithe/giving
  • Savings
  • Professional expenses (travel, clothes, work-related meals not covered by your company, memberships, subscriptions)
  • Housing/utilities (mortgage or rent, home owner’s insurance and taxes, cable, Internet, satellite TV, electric, water, sewer, gas, etc.)
  • Transportation (car payment, insurance, repairs, and auto club membership)
  • Food (groceries and eating out)
  • Insurance (health, life)
  • Health (doctor bills, prescriptions, dental work, eyeglasses, etc.)
  • Entertainment (movies, video and DVD rentals, CDs, skating, skiing, sports events, concerts, etc.)
  • Travel
  • Gifts
  • Miscellaneous (dry cleaning, household supplies)

Record your expenses under each heading and total the amount. Now compare that figure to your income after taxes. If you are spending more than you are making, then you need to find ways to cut back. Can you add another roommate? Cook at home? Cut out excess cable channels? Rent movies rather than go to the theater (or at least avoid the expensive snacks while you are there)? You need to find ways to cut back so that your extra money won’t be going toward servicing debt.

One way to always know exactly where your money stands is to have someone tutor you on Quicken or Microsoft Money, software programs that will automatically keep track of your spending and all of your accounts, as well as separate your purchases into categories, providing you with charts and graphs and making income taxes a cinch. The trick to these programs is that you need to get a receipt for everything (and we mean everything) you purchases every day. Each evening, take a few minutes to enter those receipts into your program, and voila! Your accounting is all done.

If you already have your spending-to-income ratio under control, and you are making more than you spend, then it’s time to evaluate what is truly important to you. Where do you want your extra money to go? A portion should go to beef up your savings—whether it’s for a major purchase like a car, college for the kids, a new home, or retirement. But the other portion is where Five-Star Living comes into play.

You might consider putting extra money aside as your dream fund. What have you always wanted to do? Where have you always wanted to go? Do you want to buy a new computer or techno gadget? Would you like to be able to afford to take some time off work and pursue a personal hobby or passion? Would you like to volunteer or take an outreach trip somewhere in the world? By saving ahead of time for your five-star dream, you’ll be able to make it come true sooner than you think.

Used with permission from, Five-Star Living on a Two-Star Budget, by Natalie Gillespie