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  • Theresa Gray

Maximize Your Monthly Income Part 2: Budgeting

Have you ever gotten an unexpected check in the mail? Let’s say it was for $50. It’s exciting to get surprise money You might think, “I’m going out to dinner, I have $50”, and “I’m getting a new shirt, I have $50”, and “I can afford tickets to the concert, I have $50.” Do you see the problem?

Those thoughts weren’t dinner or shirt or concert. It was dinner and shirt and concert. You got a surprise $50 but actually spent $150, so you actually got a surprise hit for -$100. Extra money like that disappears pretty easily!

In a previous post, 3 Easy Steps to Maximize Your Monthly Income, I talked about how making more money isn't the solution to your money problems. Yes, it is great to get a raise and everyone loves getting handed a bag of money - but if you don’t budget the spending it’s gone before you

know it.

making more money isn't the answer

Budgeting is the only way to keep from overspending!

But, since we aren’t often taught personal finance, most of us don’t know how to budget. In fact, in a recent survey (1) of millennials (age 18-34) only 18% had a household budget.

And, credit card debt has been increasing since 2012! (2)

So, I think it is fair to assume that if you don’t have a budget, you spend more than you should. I wrote about our realization of the importance of budgeting in, How Dave Ramsey’s Financial Peace University Changed My Life. We were spending more than we made until we started to budget.

It took a lot of work, but together we made a budget and stopped overspending. After sticking to the budget we were able to pay off $110k of debt in less than 4 years.

Before we got the budget created, our debt, overspending, and struggle to pay bills was overwhelming us. That paycheck to paycheck mentality makes it hard to focus on the big picture because the immediate picture is often so dire.

Now that we have paid off our debt and have a plan for kids college and our retirement we consider ourselves financially fit. We are happier and more peaceful. We can see the big picture now and it all started with the process I’m going to go through with you now.

So let’s get started learning how to do this budgeting thing!

Here is how to build your budget. It will help you if you download this Free Form and print it out.

Step 1 - Discover your expenses and categorize them

I’m not going to lie, the first step to making a budget is a lot of work. This step requires finding ALL of your spending history and categorizing it. When my husband and I did this step it took us about 8 hours. But, it was 8 hours well spent, because it gave us a chance to communicate about our priorities and really hammered home the realities of how much we had been spending, and how often there was nothing to show for it afterwards!

Take the first three printed pages and lay them out side by side by side like this:

Each page has categories with suggested expenses at the bottom of the category bubble. Some will not apply to you, and you may have some expenses not listed.

Any money that you spend in the month or plan on spending throughout the year needs to be put into a category.

Write out the amount of the expense and note what the expense is for inside the bubble. Keep it legible and save room for lots of writing in each bubble. This paperwork will be used as a reference for years!

Go through your bank statements, credit card statements, utility bills, checkbook, or any tracking software to find all the possible expenses in a month. Think of things where you might spend cash and estimate the amount and list it in one of the category bubbles on the sheets. Don’t leave out little expenses, like Starbucks, that add up over time.

For loans, list the minimum payments currently due.

For insurance, do not list anything that is already deducted from your paycheck.



If I look through my bank statement, I can see that I am billed every month by my electric company for $120. So, in the Utilities bubble, I will write "$120 Electric".

If I find 5 gas station receipts for a total of $150 for the month, and think that is an good monthly average, I write in the Transportation bubble "$150 Gas".

If I see that last year my DMV registration renewal was $300, I can assume the same approximate cost for this year, so I will write

"$25 Registration" ($300/12) in the Transportation bubble.


Break down shopping into what it was used for - you cannot have a ‘shopping’ or ‘miscellaneous’ category! If you spend $300 at a big store (Costco/Sam’s Club/Target/Walmart/etc.) you will need to break it into categories, like $150 Groceries, $50 Clothing, $100 Toiletries.

For non-monthly expenses, figure out what your monthly contribution needs to be even if you don’t pay it every month so that when the payment is due you will have created a little slush fund (called a sinking fund). For example - some things you pay yearly, quarterly, every 6 months (taxes, membership dues, insurance premiums, etc.) and in the past you might have scrambled to make that payment. By saving a little every month, that payment will never ‘sneak up’ on you again.

If you have a yearly fee, divide it by 12 to break it into monthly expenses. If you pay something quarterly, divide it by 4 to know what you need to be saving up every month.

Keep going through your records for the year to spot any charges that you might need to include in a category.

For the gift category, you can approximate what you will spend for the year for all gifts (including birthdays, Christmas, or other holiday presents) and divide it by 12. UNLESS - you have a separate way that you pay for extra goodies, like bonuses, or you bank an irregular income, you sell some stuff or you get side jobs.

There may be some suggestions in each category you might choose to move to another category. I put the Costco fee in a fee category, but you might want it in groceries since you only buy food there. It doesn’t really matter where you put it as long as it is somewhere in your budget and you are consistent every month.

Step 2 - Look at the big picture

Once you have finished discovering your spending, now you can total the numbers in each category bubble and write the sum on Page 4.

category totals

Yay! You deserve a tasty cold beverage break of your choice!

Walk away from the paperwork and give yourself a pat on the back for doing that work! A lot of people stick their head in the sand when it comes to their finances. It is scary to look your finances in the eye and start to SEE what you are spending your money on. So, you deserve a cookie and some praise.

Way to go!

Step 3 - Summary (a.k.a Math)

I love you, math. You don’t judge, you just give us answers.

summary page

Turn to Page 5 and write down your monthly income. Whether you get paid a regular salary or an irregular commission, you need to look at the month ahead and decide on a safe number to forecast. Refer to the first segment of this series, 3 Easy Steps to Maximize Your Monthly Income.

Next, write down the total of all your spending (from Page 4).

Subtract income minus spending.

Sometime in the future, the goal will be to have it equal zero. Every dollar will be allocated to a category! I know this seems odd, counterintuitive even. It seems like you would want to have extra dollars left over every month. But, if you think you have ‘extra’ money then odds are good you will spend it three different ways and end up spending more than you actually have!

So, if you have extra money, put more money into paying off debt, or into savings. Get a zero on the bottom line!

If you (like me) end up with the terrible realization that you are spending a LOT more each month than you make, it is time to start cutting some fat out of your spending diet.

Step 4 - Just say “no” (How to cut the fat)

Take a look at the chart of recommended percentages (below and on Page 5). Compare what you are spending to what is recommended. If you are over in one category, it makes it very hard to make your budget work out. It’s not personal, or an attack on your choices, it’s math. And math doesn’t want you working your budget with negative numbers.

Start by covering the essentials which are food, clothing, transportation, shelter, and utilities. These basic necessities are often termed ‘the 4 walls’. When you know you can keep your lights on, feed your family, and drive to work, you can focus on the other important expenses like savings, health insurance, and debt repayments.

You must cover your 4 walls, but make sure that you are spending an appropriate amount for them. If you spend 50% of your income on your housing, you will probably run out of money for the other categories.

Don’t get mad at me, it’s math’s fault.


When we learn to spend only what we make, we are learning that our money is finite.

This is a measure of your maturity.


Make sure to put in a budget category for helping others (tithing or charity). It is easier to be grateful for what you have when you start to think about how much better you have it than others. Most of the time we compare what we have to what the Joneses have and feel bummed. But you are ‘The Joneses’ to lots of people in the world. Foster a spirit of thankfulness!

After everything you need to pay for the month has been accounted for, it’s time to consider which of your ‘want to’ items can fit in the budget.

You get to figure out what is important to you and prioritize accordingly. You might decide to cut back on presents and keep restaurants. Or, you might decide to go on a meal plan and cook more affordably at home to maintain a monthly pedicure. Or - you might decide that you want to pay off debt to free up that monthly cash and cut back on every category so you have lots of money to quickly pay off your debt. What matters to you?

A word of caution on that note, though. It’s easy to spoil our children and say that they are our priority. So, we might send them to baby gymnastics, or to years and years of dance. Sometimes it’s private schooling or high end clothing. Remember that they are learning most of their financial skills from you. If they see you hate debt, and that you have a budget to control your spending, then they will (hopefully) learn to hate debt and will know the importance of not overspending.

Don’t let your budget be out of control because you cannot say no to your kids activities. Don’t let yourself be fooled that your child will pay you back later when they get a full ride scholarship. A 2015 Collegiate Athletic Association (NCAA) report (3) stated that about 2% of high school athletes are awarded scholarships and many of those do not cover full tuition or other expenses.

I’m not trying to rain on your parade. Yes, it happens! Kids can get scholarships, but if you are spending your money now on classes for your child, consider instead paying off your debt and then starting a college fund!

Unless, you already have your debt paid off, and know that you have your retirement funded - you need to start to say “no” to some stuff!

Step 5 - Get a zero, be a hero

Talk about your priorities. Talk about what matters to you. Make some hard decisions. Keep working on balancing your categories until your spending equals your income and your budget reflects your values.

You know that you are budget winner when you get a zero on the income minus spending line!

Dream it, Plan it, Live it

You can put whatever you want on your budget. It’s your baby. But if you are only wishing for something, odds are it won’t happen. Make a plan and live your dreams!

Eleanor Roosevelt said that it takes as much energy to dream as it does to plan, and I agree. But with a dream you can only revisit it in your spare time as an escape from reality. If you make the plan and do the work, you will get to live your dream every day!

Nice work on coming up with a budget! The next step will be to limit your spending to these numbers. My next post will be all about living within your budget.

Thanks for reading, see you soon! Subscribe here to get blog posts sent to your inbox!


  1. 2017 Navy Federal Credit Union Survey, by Forrester Data Consulting, from a demographically representative sample of about 1,000 millennials age 18-34. The online survey was conducted in February and March 2017, with findings released Aug. 14.

  2. New York Fed Consumer Credit Panel/Equifax, Feb 2017


#DaveRamsey #stoplivingpaychecktopaycheck #budget #spendtoomuch #overspending #financialwellness

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