I thought it might be helpful (for those of you who wonder how to budget) to see how we planned our paycheck today. These are round numbers just to let you get the basic idea.
There are a lot of different ways to manage money. This is just what works for us. If you are living paycheck to paycheck and need to get a grip on your finances, I suggest writing everything down (using a method similar to this) for a few months. Once you get the hang of budgeting, you can use a more automated system like Mint.com.
Here’s what I did:
1. Record paycheck deposit amount in checkbook. Let’s say that our income was $600 this week.
2. Add deposit amount to checkbook balance to get total amount of money available.
$600 paycheck + $25 (already in checking account)= $625 total amount of money available to work with.
3. Subract gas money ($80), and buffer* money ($20) for the week from the total amount available. This amount will stay in the account.
*This is the amount we keep in the checking account so we don’t over draw it. If you are new to budgeting, you will probably want to make this amount higher, but be careful not to think of this as free spending money in your account. This is “emergency” money.
$625 total – $100 staying in account= $525 left to budget
4. Subtract grocery money ($100)–(This is strictly for food. Money for non-food household items is listed below.). Record $100 withdrawal in checkbook register because this $100 will be taken out in cash at the ATM when I do my shopping.
$525 – $100= $425 left to budget
5. Determine amount to transfer to second account. You can read more about this here, but basically I transfer money to pay rent, bills and irregular expenses to a separate account:
1/4 rent- $260 ($1050/month)
1/4 average utilities $100 ($300-$400/month)
1/4 monthly car insurance amount $40 ($160/month)
1/4 monthly life insurance amount $15 ($60/month)
remainder in car maintenance fund $10 (we would like this to be higher)
Total: $425
We don’t need any nonfood items this week, so I placed the “extra” money into the car repair fund. If we needed toiletries or other household items, I would add that $10 to the grocery money when I take out cash on shopping day. This means that no extra money went into the clothing, medical or miscellaneous savings categories.
6. Transfer money to second account. By immediately transferring the money to pay bills into our second account, it doesn’t look like we have “extra” money to spend on impulse purchases.
$425 available money to budget – $425 transfer to second account= $0 left to budget
This is what is called a “Zero-based budget” meaning that every single dollar is accounted for.
Of course, your plan will look different because you will make different choices, but this gives you an idea of the mechanics of what we do each week to plan our money. Our pay does not cover every expenditure or spending category that we would like to fund, but by putting money in the most important places and being careful, we can make it work.
When we make extra from my husband’s second job or other sources, we try to put most of the money into our emergency fund, but life doesn’t always work perfectly. We just do the best we can with what we have.
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Hi, I am just recently married, and would like to budget better. I have so many questions, such as.. My income is variable as I work per diem, my husband is salaried. How do we budget on two different types of income? He pays the bills throughout the month by automatic bill pay through his bank. When I get paid, I give him my paycheck since he is the better out of the two of us. I would like to write expenditures for 2 weeks per your blog, but I don’t think I can get him to do the same. Also, taking the money class-Suze Orman to get on same page. Any suggestions??
Also, I would like to start saving for an emergency fund, but we are living week to week financially. Lastly, am considering going to post graduate school, but am afraid of incurring all the financial debt associated with that…I know I should also be saving for retirement, as it will be here sooner than I know… But how can I when there isn’t any extra $$? Thank you in advance for any help!!
I personally would wait to go to school until you can get your finances in order and you pay for it without debt.
Hi Heather! It will definitely help the two of you to take a financial class together. I don’t know anything about the Suze Orman class, but I can very highly recommend Dave Ramsey’s Financial Peace class. It literally saved our marriage.
If you can’t get your husband into a class, at least have him explain to you where all the money is going and the two of you come up with a plan. We have a similar situation with one regular income and then additional irregular income. We pay all the bills out of the regular income and then have a prioritized list of things we use the irregular income for (building emergency fund, paying for school related items, clothing, etc.). If your husband won’t write down expenditures, you should at least have access to the bank accounts and checkbook so you can see where everything is going. Hope that helps!
Thank you! That was really helpful! Take care
I’ve been meaning to thank you for a while now…
A few months ago I came across your blog (via Pinterest? I can’t remember now) and saw your spreadsheet for your second bank account.
My financial situation is good but everyone could always use some improvement right?!. And I have a few addictions in life, 2 of them being online banking and spreadsheets. Yes, I’m a nerd, and I wear my nerd hat proudly 😉 So I implemented your second bank account setup, and as of May 1st, this has changed. my. life.
All bills/expenses/groceries come out of one account, with the spreadsheet indicating what is in each subaccount. Any “extra” money from my check goes into my “spending” account. This way I know there is money for every bill in the main account (no more worrying!), and I know exactly how much money I have for spending/extras. If that account is low, I know not to overspend.
You, my dear, are a genius!
Sorry this got lengthy and I hope it makes sense. THANK YOU so much, and please continue with the financial advice. 🙂
Wendy
Thanks so much Wendy. I just had to find a way to trick myself out of my compulsive spending–haha!
Hey Kimberlee, I am new to your blog and new to budgeting. I’m having a hard time getting started with the amount to transfer into the 2nd account. I know how much to spend but usually don’t have enough to pay the bills due that week. I may not be looking into my bills far enough in advance. Please advise.
Thanks!!
Hi Cadie! When we first started this process, we paid only the absolute necessities and put everything extra into the second account, and even tried a few ways to make some extra money (see this post for ideas: https://thepeacefulmom.com/2012/04/04/5-easy-ways-to-get-extra-cash/–the comments have some awesome ideas!). It took us a few weeks, but soon we were able to pay the rent out of the second account, which enabled us to put most of our paycheck for that particular week into the second account into other categories.
So you may not be able to pay things out of the second account for a while, but save up over a few weeks to get ahead so that eventually most of your paycheck is going into the accounts for future payments instead of paying what you need right now. Hopefully this make sense, but if not, ask me another question. 🙂
Shannon,
I am also a type 1 diabetic. Im on a very limited income. I used to get insulin samples from my doctor but now I get insulin from the pharmaceutical companies. You have to apply for the programs but it is well worth it.
We have moved to a monthly budgeting technique, as my husband’s paycheck and military retirement come in on only the 1st of the month. The principle is the same, but we set our spreadsheet up for 4 weeks at a time, pay ALL the bills on the 1st, and then evenly divide out grocery and entertainment budgets for the rest of the month.
That sounds like a smart plan Erin. It’s easy to end up with no money at the end of the month when you get paid once at the beginning.
I want to try to implement this after our move but struggling to figure out exactly how to start…
Try reading this: https://thepeacefulmom.com/2012/02/21/living-on-less-than-28000-a-year-managing-the-money/ and then ask if you have questions. 🙂
Thank you for sharing…..really gets me thinking…We have so many medical bills&perscriptions, it is so hard to plan for them….my husbands diabetic supplies,syringes,insulin,test strips and our scripts are 300.00 monthly,however he recently had surgery so we have so many medical bills all over the place.It so hard to stick on my budget when I have to agree to pay everyone a bit,sometimes I feel like I am robbing from Peter to pay Paul,so to speak….We have no other debt,a very old car(no savings to replace it) a house payment that is only 482.00 monthly,insurance $63.00(I am still paying our youngest college age sons auto insurance),utilities 300.00-these are our most important bills.I am rambling on here but really would like to know when you have a situation come up such as a surgery,mri,ect. ect. and you have to make payment plans because emergency funds wont cover all the thousands (we do have insurance).How do you handle this???????It has to come from some place? but where?I love your blog and still am amazed at how far you can stretch a dollar…..
Hi Deborah-Jean! I am sorry that you are in this situation. You have to pay for your needs first, so while those bills are seemingly “screaming” at you, you must provide for your basic needs before worrying about those bills. I am not saying go out to eat instead of paying them, but buy groceries and gas, pay your utilities and house payment, pay your insurance and then work with what is left over.
If we had a situation where we owed a lot of money due to medical emergency, etc., I would try to work with the doctors and hospitals explaining my situation and showing them the numbers, but if there isn’t enough to pay the bills I would have to let them go to collections. I don’t recommend this, but if you can’t sell anything or get a part time job to bring in more money, you don’t really have another choice.
I think the main thing is to look at the situation logically, do what you can do and not worry about the rest. I hope that helps and doesn’t discourage you. 🙂
That was going to be my question too. I am also diabetic and our Rxs run over $300. Unlike other medical bills, Rxs are pay on the spot or you don’t get them. Does anyone have ideas for Rx overload? I’m going to hve to start picking and choosing what I treat.
You might want to look at this book: The Schwarzbein Principle: The Truth About Losing Weight, Being Healthy, and Feeling Younger
This doctor has been able to reduce her patients’ insulin intake and in some cases remove them totally from insulin-dependence because of changes they made in their diet. I am not a medical professional by any means, but it might be worth checking into. Medication can be really expensive.
Thank you for you reply. Unfortunately, I am a type 1 (juvenile) diabetic and am stuck with it for life. I know type II people can be cured entirely in some cases with the right diet and exercise changes (I’m not saying that is easy). I do eat low carbs so I do not have to use as much (for type 1s, insulin use depends on the body’s insulin requirements, which has completely stopped making insulin, and the carbs in the food he/she eats).
I do appreciate your thoughtfulness. I guess I am just frustrated. I hope it doesn’t seem that I am not appreciative as a result. I admire your blog and kind replies to your readers! Thank you!
Shannon- I should have mentioned that it was for Type II Diabetes. Type 1 is something totally different.
I am sorry that you are having to deal with this. I would feel frustrated too. I wish that I had a really awesome idea for you, but other than cutting other areas of the budget or bringing in more income, I am not sure what your options are. Sorry. 🙁
I don’t know if you’ve done this yet but if you call the hospital you can set up a payment plan. We’ve done this for every baby and every surgery I’ve had… usually about $100/mo. Good luck!
Hi, just a question about budgeting and kids. First, I have always been frugal and very conservative spender. I don’t think I spoil my kids, but it is hard as my kids are getting older when they see friends going to movies every weekend or see their friends going on hundred dollar shopping sprees with there Mom’s. My kids are good and barely ask for things and I try to budget the fun things for them to do, but even the basics are getting harder. Now my questions….I HATE this extreme guilt I get when I can’t give them “things” to the point of tears! Why can’t I control this when I know what the right answers are. How do you all deal with this and what do you do for Christmas? Thanks for listening!
Hi Shawnee! The difficult thing about money is that it isn’t just about the math, it’s about our beliefs, emotions and what we learned growing up. On the surface level, a practical thing that you can do is really take advantage of free activities in your area or coupons that come in the mail. For example, a new gas station opened in our area and they sent us a coupon for a free shake. I made a little date out of it and took one of my daughter’s to get the shake. It didn’t cost anything but the gas to get there, but we had a great time talking and spending time together. Maybe you could set a budget for your kids to have some spending money for weekends and let them decide where to spend it.
On a deeper level, you may want to pray and talk with someone about what the root issues are for you. Did you have an impoverished childhood? Do you believe deep down that spending money is the way to show love to your children? It helps me to write things out. One of the things that I realized that I deal with is a “poverty” mentality in that I expect to not have much money instead of expecting to have everything we need. I prayed about it and asked God to heal me and I am doing better now, but it still crops up from time to time.
I hope this is helpful. I pray that you can find peace.
As far as Christmas, I do have a category for that in the second account. We give each child $50 and they can choose a gift or they can get cash to put toward a larger purchase. We try to make the holiday more about being together and enjoying fun time than about the gifts. If we have extra money, we like to take them out to dinner which is a rare treat for our family.
My son isn’t old enough for the school age stuff, but we’ve been preparing for Christmas. We have been keeping an eye out on the clearance toys at Target and buying them for a fraction of the cost and storing them for Christmas. We were able to get a couple $20 toys for about $5 just last week. Since we don’t spend a ton, it doesn’t kill our budget, and come Christmas, it’ll look like a real Santa haul. Overall, it’ll probably only add up tp about $50 spent (like Kimberlee’s) but look like a bunch more. Then again, a one year old doesn’t know any different, so I could be spouting useless suggestions for your situation. Whatever works for you, I hope you feel better and worry a little less.
Your blog and budget tips have blessed my family and I so much. We set up a “freedom account” 4 months ago when we moved into our new house. Every 2 weeks when my husband gets paid, I immediately sit down and do the math, transfer the money and breath a sigh of relief that our rent will always be on time! We too are on a very tight and limited budget, and many of the “other” or “rainy day” line items on our freedom account have not gotten a lot of deposits into them because of car maintenance issues and more being spent on gas than we budgetted for (my husband is in construction and the company’s current job is 60 miles from our house which is has seriously cut into all of our other expenses, but God knows and will see us through)! But, having two separate accounts and the diligence to make sure we know how much money we “actually” have, after bills, etc. are paid for, is priceless! Thank you for sharing!
Way to go Desi! Sounds like you are doing a great job. 🙂
I love this idea so much and would like some advice to make it work in our personal situation.
I work full time and get paid monthly. My husband is self-employed and the amount he brings home weekly varies GREATLY. We need both incomes to stay afloat, so using just mine for budgeting, for example, won’t work.
Thanks for any ideas you or your readers might have!
When you have irregular income it helps to make a prioritized list of what your needs are each month. For example:
1. food ($400/month)
2. gas for car ($400/month)
2. utilities ($350/month)
3. house payment ($900/month)
4. non food items ($75/month)
5. credit card payments ($100/month)
Each time you get paid, work your way down the list. So if your total pay for this month were $2200, you would take out grocery and gas money first. Then pay utilities and house payment. That would leave $150 so you would have to decide to spend less on non-food items or not pay the full amount on your credit card. Does that make sense? You always want to pay your necessities first.
Do you record this by hand, in a spreadsheet or in a budgeting program? I don’t want to spend a lot of money, but would like to find a program that can categorize our credit card purchases. We purchase everything on a credit card and pay in full every month. We have money in the bank and have not debt but I’d like to get a better idea of where it goes every month. We’ve been operating on the very loose plan that if we can put money into savings for a rainy day and irregular expenses and pay all bills in full we are good. It’s not very scientific and I know we are spending more than we need to.
I personally do ours by hand, but I am sure you could make an Excel spreadsheet. Here is a link to a blank spreadsheet if you just want to print something out to start with: https://thepeacefulmom.com/click-to-print-freedom-account-page/
Janae, does your credit card company already have something like that available? We have one that categorizes into restaurant, gas, etc.
Janae, mint.com will categorize your purchases, no matter what card you use to pay for them. It will try to guess automatically, but you can go in and put what it’s for. Like, I buy gas and groceries at the same places so it’s always getting them confused, but I just go in and change to the appropriate category. If you’re nerdy like me, you’ll love all their charts and graphs that show your spending habits. It’s free to use as well.
Thank you again for sharing this! I got a call today, and I am not moving later this fall like I had hoped. Instead, I will be moving NEXT WEEKEND!!! I need to be putting all this into practice now. 🙂 Very timely help.
I am so glad Charity. Thanks for letting me know. 🙂