In this Beginners Guide to Budgeting I will walk you through how to set up a zero based budget.

Update: I have created a simple update to my budget doc that allows you to put in your gross income and it will calculate your net pay after taxes. 

Step 1

Determine your income- I take my net take home pay plus HSA contributions  and use that as my take home pay. You can do this in other ways but that is how I have chosen to do it.

Step 2

Determine your categories. I recommend that you try not to over complicate this especially as you begin. The more complicated, the more time it will take to manage.  I use more categories than I need and can probably go through and combine some to make things more simple.

Step 3

Determine your expenses. This can be a challenge and I recommend old fashioned pencil and paper. Don’t just guess (you will be wrong). Log in to your back account website and look at all purchases for the last month. Maybe even print the statement.  But wait, do you use a credit card? You will need to add all those purchases. Use your categories as column headers and then write each expense in a column.

To finish this step we need to consider expenses that may not be monthly. Things like car insurance, life insurance, property taxes, or anything else.

Step 4

Start to formulate your budget. Add up all your expenses from last month. Is it less than your income? If so, congrats! You are living on less than you make without too much focus. If it is more, that’s okay. When we started out we were in the negative nearly every month.

Make a copy of my Google Sheet and start to fill in the blanks with your numbers.  Feel free to change the categories to fit your priorities. You will notice that the formulas will add your expenses as you enter them.

Step 5

Once the sheet is filled out with income and expenses:  Does the sheet give you a remaining balance or show you in the negative? If you have a balance, go ahead and set some saving priorities. If you are in the negative this will be your chance to evaluate some of your spending. We will look at this in much greater detail in the future but we need to get you balanced. Some areas to look at immediately:  Eating Out, Groceries, Electric, and Entertainment.

Step 6

I know this is a lot of steps but just think, if you can get these concepts, you could be on your way to not having to worry about money. Is that worth a few steps? I think it is.

Pick your software and put your budget info into the software. YNAB is going be a little different than the others and we will talk tomorrow about how to set up YNAB.

Step 7

As you spend over the next month try to follow along with your budget. Spend 5 minutes everyday categorizing your spending. If you think you don’t have that much time each week that  is 0.3% of the month. Really??? You can’t spare that much time for something this important?

Step 8

At the end of each week review how you did. Make adjustments as needed. Your budget is like a map, so if you got off the trail, the budget will get you back on. You may just need to trim something elsewhere to do it.

Step 9

At the end of the month review how you did and go back to Step 4 to repeat the process for the next month. There are even tabs for the next few months so you can track what you did the previous month.