Figuring Out Finance: I Need a Budget, Where Do I Start?

This article is part of an original iGrad series, Figuring Out Finance, written by knowledgeable finance expert Ted Jenkin, founder and co-CEO of oXYGen Financial, Inc. Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation.

Whether you are 22 years old or 52 years old, you are truly the CEO of your personal (or family) finances. There are those of us who love to track, manage, and watch our monthly numbers, and others who would just prefer if the ATM told us what our bank account balance was each month. As CEO of your money, you will always need to maintain a close watch on your two personal financial dashboards, the balance sheet and the profit and loss statement. Specifically, the profit and loss statement shows us all of our net inflows and net outflows to see if we can save on a monthly basis or if we are spending more than we make.

The Spending Plan

budget gargoyleFor those people who say to themselves, “It always feels like I am living paycheck to paycheck”, the notion of putting together a budget will be crucial to your financial success. Since it’s likely that you won’t have an infinite amount of income, you’ll have to closely guard what money goes out on the back end each month. I don’t really like the word budget, since to me it has more negative connotations than positive ones. I prefer to use the term spending plan, which means building a solid balance of saving wisely, having fun today, planning for your reoccurring and on-time bills, and making sure money is set aside for taxes so you don’t run into an IRS problem. Now, where do you get started setting up a realistic spending plan?

What You Need to Get Started

If this is the first time you have ever tried to put together a spending plan, there are some important documents you’ll want to pull together. Here is a list to get you started:

  • Your last full year of credit card statements (Visa, MC, Amex)
  • Your last 12 months of bank statements or your check register (if you still keep one of those)
  • Any investment statements that generate interest or dividends
  • Your most recent pay stub
  • A list of potential expenses over the next year that may include one -time expenses
  • A list of any frequent flier points or rewards that you currently have

Committed Expense vs. Discretionary Expense

Generally, a spending plan will have two major types of expenses which are called committed and discretionary expenses.

Committed expenses will be those expenses in the spending plan that are not likely to have much change over the next year and are harder to adjust month to month. These are things like rent, mobile phone, car insurance, etc. While you can shop around to get a better rate on some of these, they will be fixed in your spending plan.

Discretionary expenses are sort of the black hole in the spending plan for most people. What do I spend each month for meals and entertainment? What will I spend this year on travel and vacation? Will I be donating money back to my college or religious organization? The last part of the spending plan is preparing for one-time expenses. Normally, there are going to be three or four unexpected items that come up every year that add an extra expense. For example, you might get invited to a wedding that requires you to travel out of town; your car breaks down and needs major repairs. These are the types of one-time expenses that can kill a spending plan, and the main reason that building up some sort of emergency fund is so important.

Setting Up a Spreadsheet

With the list of documents that you have pulled down to start your spending plan, the best thing to do is find a spending plan sheet—pull a basic one from the web, or you can use a site like if you want something online. Another option is to use a personal budgeting software program. (If you choose this route, iGrad suggests trying You Need a Budget——a great, comprehensive online money management program.)

My recommendation is to start by using an excel spreadsheet and listing each of your bills one by one, splitting the budget into the categories of committed expenses, discretionary expenses, one-time expenses, savings, and taxes. As you go through your last 12 months of bank statements and credit cards, list out what you actually spent in the prior year. This will give you a great starting baseline for the year ahead. From that prior year of actual expenses, you can look at which expenses should continue as status quo, what one-time expenses you know of that will be happening, and, most importantly, begin to plan out what you will spend on fun based upon your current income or the income you expect to earn.

Examining the Results

If you find at the end of the exercise that you are spending more than what you’ll bring in, here are some final questions you should be asking yourself. What are the things I need? What are things I want?  If I can only afford to do one fun thing this year, what will it be? Can I shop these bills to get a better deal? Spending plans are never easy to build, but if you get in the right habits early it will help you as you build a more secure financial future!

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