I spent a few minutes today flipping through the archives here, and found dozens of posts where either DK or I champion the merits of a well-planned (and followed) budget, but not a single post on how to write a budget.

Dave's Envelope System Explained | DaveRamsey.com

Egads! What have we (not) done?

Ok, I’m going to lay it down—a quick-and-dirty budget plan, how to create one, refine it, and make it work for you. First off, figure out how much you bring home every month. I’m talking minimum amount.  (Not the “in a good month” figure. I’m talking the bare-bones-taxes-paid-no-bonus-or-commission amount).   It’s way easier to figure out what to do with surplus than deficit, right?

Second, start subtracting big, fixed monthly items. Rent, auto payment, utilities, tithe or charitable donations, average or high phone bill estimates, debt payments, etc. Third, subtract the necessities in life (groceries, etc). Groceries, auto maintenance, cat license, that sort of thing. Use your last few months of bank statements to get an idea of what you spend in each category.

Ideally your income minus your expenses should equal zero. (Yeah, I know, you’d think that if your budget works, you’d have money left over, but that’s not how we roll when we’re trying to beat debt.) Fiddle and adjust until everything works out to equal zero by the end of each month.

Fourth, prioritize these items in a spending plan. Now that you know how much is needed for each item, work from the highest importance to the lowest, Food, housing, utilities, and down the list so on and so forth.  Each week, check your adherence to the plan. Bonus points for using envelopes or a personal financial management system like Mint.com to track your budget day-to-day to ensure you’re not overspending in any categories.

If your income exceeds your expectations, apply your surplus to emergency funds or your debt repayments.  If your income falls short of your expectations, cut your expenses, or don’t pay something.

Also, write a new budget every month. Use your calendar as your guide.  A five week month that still has just two paydays is going to get mighty short.  Ditto on a month with six birthday parties to attend, a vacation scheduled or your auto license renewal.  Your budget is a moving target, and the key to success is you moving it, not it moving you.  Once it’s written each month, sign it, post it and stick to it as law.  Good luck!

PS–Budgeting is financial fitness, and just like physical fitness, it takes practice to get good at it. Expect a few mistakes and mess ups the first few month and include a “just in case” line.   Within three months, you should be able to do away with that. I keep all of my prior budgets in a binder on my desk that I can and do review.  Looking ahead, I see that July and August always have a lot of birthday parties in them, so I’ll be adding extra in the “gifts” category. Also, one of the cats is due for his shots according to my notes–so I’ll have to put a veterinarian visit in the budget as well. Without this history, I might otherwise forget the annually-recurring items that can be so easily neglected.