Read this first.
Doing a household budget is essentially Grade 2 math. Take what you bring in and subtract what goes out. There are many apps and programs to do this: EveryDollar, YNAB, and Mint are the more popular ones, but I recommend starting with paper, moving to Excel then an app if you really want to geek out.
When most people do a budget the look through the rear view mirror and write down everything they spent last month. You need to look through the windshield and give each dollar a job before the next month begins. Just by paying attention, you can at stop money slipping through the cracks, what gets measured gets managed. For our purposes let’s break down budgets into extreme get out of debt budgets and less strict post debt budgets.
Getting out of Debt Extreme Budgets
Start your budget in this order:
| Food (Groceries) |
| Shelter |
| Transportation/Gas |
| Utilities/Insurance |
| Everything Else |
Food– I’ll help you out. For a single person, $80 per week. Two people, $140 per week. Four people, $180 per week. Stop yelling, yes you can. Packaged junk food is more expensive so you won’t be buying any of that (fruit rollups, granola bars, juice boxes, pre-cut fruit cups etc). You also won’t be getting coffee out or going near restaurants. You’ll need to start meal planning well in advance so there’s no reason to buy food out. A lack of planning does not constitute an emergency. Use cash (post covid). Interestingly, I’ve used cash for groceries for years, but have used a debit card during covid and initially spent exactly 10% more just by using plastic! Cash forces discipline as you watch the money disappear. It will take about three months to get this right.
Shelter– Your rent or mortgage shouldn’t be more than 25% of your take home pay. It might be 30% but anything north of that starts to impact your overall ability to save and live. If you rent, moving might a discussion point. “But I live in (insert expensive area here)!” You don’t get a pass on math because you choose to live in a certain place.
Transportation/Gas– Don’t have a car payment. If you do, you should be working to pay it off or sell the car. Remember, all your vehicles shouldn’t add up to more than 50% of your annual household income. Read more here. Gasoline is usually a fixed cost but just be mindful of excess driving and idling. Fuel consumption is one factor to consider when buying another vehicle but don’t fall into the trap of buying a brand new expensive car just to ‘save’ on fuel. I recommend taking a three month average for fuel consumption for budgeting purposes.
Utilities/Insurance– This includes internet and reasonable cell phones. Again usually a fixed cost but anything you can do to lower the premiums on insurance is a bonus. Ask about deals, threaten to move to a different provider, bundle car and home insurance etc. Put these types of bills on pre-authorized payment plans through online banking or your debit card.
Everything Else– Once you’ve taken care of the above categories, you’ve eaten food, kept the roof over your head, the lights and heat on and have a way to drive to your job. If you have made the decision to sacrifice in the short term to get out of debt you need to take a hard look at everything else. What about clothes? You have enough already, but if your kid has outgrown his winter coat, that might count as necessary. The outlet mall having a sale? Stay away, it will be there in a few months. “But we go for coffee at work every day!” Now you don’t go, or maybe you go but only get a small black coffee once a week for $1.95. Take the opportunity to tell others about your plan so they can be debt free too. You might notice that there isn’t a line for savings because you’ve paused any savings until you are debt free except your house and have an emergency fund.
Again, this extreme budget is only for when you are getting out of debt and need every penny to make it go away. The harder you crunch down, the faster you are out of debt.
Example
Income
| Gross | $75,000 |
| Take Home After Taxes | $60,000 |
| Per Month Take Home | $5000 |
Expenses per month
| Food ($140 per week) | $560 |
| Shelter | $1500 |
| Transportation | $400 |
| Utilities (power, heat, water, internet, veh and house ins, basic Netflix) | $350 |
| Minimum Payments on Credit Cards/other debt | $200 |
| Total | $3010 |
Extra Cash to Throw at Debt: $1990
Post Debt Realistic Budgets
The same categories apply, but now we’re adding retirement investing (15% of gross income) and fun money. You can start to live a bit more within reasonable arcs for your income and not necessarily obsess over every penny.
Debt Free Example
| Food ($180 per week) | $720 |
| Shelter | $1500 |
| Transportation | $400 |
| Utilities (power, heat, water, internet, veh and house ins, basic Netflix) | $350 |
| Retirement Investing (15% of $75k is $11,250 per year) | $940 |
| Fun Money ($140 per person) | $280 |
| Mid Term Savings (new car, vacation, couch, xmas etc) | $810 |
| Total | $5000 |
Here’s another example with a higher income level:
Income
| Gross | $160,000 |
| Take Home After Taxes | $109,800 |
| Per Month Take Home | $9150 |
Expenses per Month
| Food ($200 per week) | $800 |
| Mortgage | $1500 |
| Gas | $400 |
| Utilities | $400 |
| Retirement Investing | $2000 |
| Fun Money ($200 per person) | $400 |
| Mid Term Savings | $3650 |
| Total | $9150 |
You can add categories as you want but it doesn’t need to be complex. Individual hobbies I would put under Fun Money. Any large purchases can be a deliberate decision out of the Mid Term Savings account, but I would not have a coffee fund, lunch fund, wine fund, gift fund, book fund etc. Once you have lived with your budget for a few months, only small changes and tweaks need to be made occasionally.
For a simple excel sheet try this.
marksdailydollar.com 