Creating a budget

How to create a budget

Since we use a 28-day budget, we made a budget every 4 weeks. Our next budget starts on March 19th and will run through April 15. If you have never done a budget, or a 28-day budget, start your budget when you get your next pay check.

To create the budget, you’ll need a piece of paper or a spreadsheet. Either works fine. I like a spreadsheet because you can copy the worksheet so you don’t need to start from scratch and you can keep a history. It will also automatically calculate how much money is left over as you create the budget. The goal is to spend every dollar on paper before the month begins.

Step 1: Income

The reason I love the 28-day budget is that the income side is easy for us. We each get paid twice, on the same day, during the budget period. I include my income and my husband’s. This is the base budget. We know this money is going to come in. If you have irregular income, put in the minimum income you know will come in. Look at old pay stubs to see what this minimum amount is. Total up your projected monthly take home income. This is the amount you need to spend.

Step 2: The Basics

There are four walls that must be paid before you pay anything else: food, utilities, housing and transportation. These are the items we budget for first.


This is your grocery budget. I do not include eating out in this category. I do not include the occasional lunch I buy. I also do not include cleaning supplies, laundry supplies, paper products, cat food or cat litter. This is just food from the grocery store. We can eat pretty well for $350 or approximately $87.50 per week. Some weeks we spend more, like at the beginning of the month when I am stocking up on things like chicken and beef. Some weeks we spend less. Figure out how much you spend on groceries per week and multiply by four (another reason I love the 28-day budget).


Find your bills for the upcoming month. Which ones are due before the end of this budget? You might realize that some of them might not be due until the next budget starts. Excellent! Don’t budget for those! Only budget for the ones that need to be paid during your budget cycle. Use the actual amounts due in the next 28 days. Do not estimate unless you do not have the actual bills. This might happen occasionally. If the actual bill is not available yet, you can estimate but as soon as that bill comes in, make sure to update your budget with the actual figures.

Utilities include heat, water, electric, phone, cell phone, internet and cable. You can also include things like Netflix or Hulu. We no longer have cable TV so we budget for Hulu here.


This is where you should budget for your rent or mortgage payment, property taxes and insurance on your house (if you don’t use escrow) and repairs and maintenance on the house. We budget a small amount each month for minor repairs and maintenance (gas for the snow blower/lawn mower, light bulbs, grass seed, etc). In the summer months we budget more than in the winter months. If there are any projects you plan to do over the next month, budget for it now.


In this section of the budget, you should have a budget for gas. If you pay your car insurance monthly, it should also go here. If you save each month for insurance to be paid every 6 or 12 months, it should also go here. You can also budget for repairs and maintenance here as well. I only budget for those on the months I know we are going to need them. We have our $1,000 emergency fund to pay for emergency car repairs. We do not have a sinking fund for car repairs.

Now you have covered the basics. Hopefully, you still have money left.


The next thing we budget for is charitable giving. We feel this is important so after we cover the basics, this is our next budget item. Some believe this should go to the top of the list and if that is your belief, then put this first. We budget an amount to give each month, then discuss which charities we will give the money to. We generally find there are more organizations we wish we could give to than money in the budget so I keep a list when I hear about an organization doing great work and pick from that list.


We do not budget for clothing each budget, only when we plan to go shopping for clothing. I do put $10 per month into the budget for laundry. Typically, that money ends up in the debt snowball at the end of the month, but if I need to purchase items to make laundry detergent or vinegar for the rinse cycle, I have the money. Don’t forget to budget for dry cleaning if this is a service you use on a regular basis.


This is where you would budget for out-of-pocket medical expenses and insurance premiums if you do not have insurance through your employer. Don’t forget to budget for monthly prescriptions or over the counter medications. I typically place $40-50 in this line item. If we do not use it, I put it toward our debt. If there is an emergency, I have the $1,000 emergency fund.


Under personal, you should have line items for cleaning supplies, toiletries, pets, kids activities, day care, and other insurances (life, disability, etc). You could also have line items for haircuts, dues and subscriptions, and other items that do not fit elsewhere in the budget.

You must also have a line for “blow money” or “pocket money”. Blow money is a very small amount of money that you can blow on whatever you want. Maybe it is lunch out at work, a magazine, gum, whatever you want to spend it on. You can also save your blow money for larger purchases. It is yours to do with as you please. My husband and I each get $50 per budget. Many times, we don’t spend it all and at the end of the month, it ends up in the debt snowball. The total blow money line item should be a very small percentage of your budget. Ours is about 1% of our budget. This should not be hundreds of dollars. It’s a small amount that you can spend on a whim. Don’t skip it. You need that little bit of release or you will go mad one day and completely bust your budget.


This is where you budget to have a little fun. Eating out can go here as well as other fun things like movie nights or date nights. How much you put here depends on your income and your financial situation. We have $100 a month in this budget. Again, it’s a little more than 1% of our budget. We want to get out of debt so we don’t put much here.


Here is where you list all your minimum monthly debt payments. In this section, just list the minimum payments. We will get to the snowball in a minute. Make sure to watch the due dates on your debts and only include the ones that fall within the 28-day budget.

At this point, we have paid for all the needs for the month. Do you still have cash left? If so, we keep going!


Now we start budgeting for goals. If you are in debt but have no savings, I would recommend that your first goal is a $1,000 baby emergency fund. This will help keep you on track if something breaks or an emergency occurs while you are getting out of debt. In the years we have had a budget, the largest emergency we’ve had was $1,200. We actually cash flowed it out of our budget. Having the emergency fund helps me sleep at night.

If you have your $1,000 emergency fund, the next goal is to pay off your nonmortgage debt. This includes credit cards, personal loans, student loans, car loans, small home equity loans, boat loans, pet loans, and whatever other debt you have. The tighter your budget, the fast you can pay off these off and get closer to being able to spend your money on growing your wealth, giving and spending rather than giving all your money to the bank! Every extra dollar you can squeeze out of the budget goes to pay off debt.

Once your debt is paid off, except for the house, the next goal is to save a big emergency fund. This one should be 3-6 months of household expenses. Not income, but expenses. You can use your debt-free budget as a guide.

Now you have no debt and a big emergency fund. Now you have some options. You should start saving for retirement and, if yo have kids, start saving for college. If you don’t have a house, you can start saving for a down payment here.

This is where we start saving for those purchases we are going to pay cash for. You have worked so hard to get out of debt; do not go back in! Need a car? Start saving! $1,000 a month for 10 months is a $10,000 car. Save for 5 months and get a $5,000 car. You get the idea. Want to go on vacation? $1,000 a month for a few months is a pretty nice vacation. $500 a month for a year is a $6,000 vacation. It usually takes that long to plan something! This is where you start to dream a little and plan to pay cash.

If there is still money left over, throw it at the house with the goal of getting it paid off early. This can save you tens of thousands, maybe hundreds of thousands of dollars in interest.

This is the path we are using. Give it a try. Please leave your questions below.

Please note: I reserve the right to delete comments that are offensive or off-topic.