Instead of starting a budget, you should start a money management system. Seriously. The word budget sounds like a bad word. It makes people think of restriction, constraints, and rules. A money management system sounds like it has a little more freedom; it sounds more peaceful and less rigid.
As we approach the end of the year, it is a great time to get your money management system set up and ready to start tracking the first of the year. In order to set up your money management system, you should start with a list of typical expenses. I like a system that breaks out expenses by category. For example put all of your housing expenses together. Mortgage, property taxes, utilities, etc.
The main categories I suggest are: Housing, Family, Individual, Children, Transportation/Car and Other. Included in the Individual category is your own discretionary funds; your spouse will have their own discretionary fund as well so that you can each have a category you don’t have to explain or justify.
Once you have the categories, start with the expenses that are fixed and the ones you must pay. For example the mortgage or rent is pretty much fixed and you have to pay it. The gym membership and Netflix may be fixed, but they are not required. You may not want to do without them, but you could if you had to.
By the end of this you will have a list of expenses that are grouped by the above groups and labeled with “needed”, “wanted”, or “could do without”. The total of all of these expenses needs to be compared to your take home cash. If expenses exceed revenue, then you have work to do on the Wanted and Could Do Without categories. You must work them until your expenses are less than or equal to your revenue.
Keep in mind that there are some categories you have to plan for and set money aside. These include: home repairs/improvements, new car purchase, vacations, college, property taxes (if you pay annually).
The key is to get it set up and plan time to review it and track it. If you over spend one month, don’t panic, just keep tracking, adjusting and modifying.
Eventually you will have a good handle on your expenses and you will be able to plan for vacations and save money for the things you really want.