Callers to the Dave Ramsey Show often ask questions about budgets and budgeting. Ramsey’s advice is for spouses to plan ahead for the month or pay period. But many couples find it hard to handle budgeting and forecasting what expenses are going to come up when first getting started with a budget.
Include the Predictable in the Budget Plan
The first step to planning a monthly budget is to set aside money for the monthly obligations that are fixed. Car payments, student loan payments and mortgage payments fall into this category. These items do not change each month and are the easiest part of personal budgeting. If possible, sign up with water companies and other utilities for the level payment plan to even out utility bills to a fixed amount each month. Plan a specific amount for groceries and food purchases. Couples who are overspending on groceries every month may need to look at cost-cutting ideas.
Budget for the Unpredictable but Common
Some monthly bills are going to be less predictable. For the bills that cannot be set as a fixed amount, look at several months of statements to come up with an average amount to put in the budget. In the first couple of months, plan a little bit on the high side of the average to ensure there will be enough money to pay the bill. If the bill is lower, save the extra money to go toward next month’s bill if it is higher. For example, married couples using the envelope system may decide to budget $75 toward medical expenses and co-payments. If only $50 is used one month, the extra $25 should remain in the medical expenses envelope for next month. If there is repeatedly money left over, the budgeted amount is too high and should be adjusted.
Budget for Special Events
The next step is to look for events that are coming up during the pay period or the month ahead. Are there any family birthdays or holidays? Are there any planned trips or parties? Set aside a specific amount for birthday gifts, gas money, party expenses or holiday food. Are any annual or biannual bills coming due? Ideally, large bills like property taxes should be broken down into monthly amounts that are set aside to pay the bill when it comes due. When this isn’t possible, try to break a large bill up over one or more pay periods. With personal budgeting experience, it is easier to know how far in advance to plan upcoming expenses.
When starting a budget, it can be difficult and confusing to understand how to know what expenses are going to crop up over the course of the month. After a few months of budgeting and forecasting, however, it gets easier to plan ahead for upcoming expenses. Those interested in family budgeting might like to read Ramsey’s Financial Peace Revisited [Viking Adult, 2003] or Total Money Makeover [Thomas Nelson, 2nd edition, 2007]. Budgeting tools are available at the Dave Ramsey website. Others may find personal budget software like Quicken useful.