A Story About Paying Off Debt and the Obstacles Along the Way


The $76K Guide To Making A Simple Budget

You may have noticed that unlike many other personal finance and investment blogs, this blog doesn't offer much in the way of advice. Frankly, that's in large part because I feel unqualified. "You have student loans and a credit card balance," says the little voice in my head. "Nobody wants advice from you." 

So I usually stick to telling our story, figuring that we can start doling out suggestions and strategies once we ditch our debts.

But the other day, someone on Twitter asked me for advice on making a budget. Taken aback, I burst forth with an array of word vomit that boiled down to, "We didn't know what we were doing so we sort of just tried a bunch of different things and finally after like half a year our budget magically worked. Voila! Good luck!"

Later, when I gave it more thought, I realized that there's more method to our budget madness than I'm giving us credit for. Yes, it took us a long time to iron out the wrinkles, but our general approach was solid. And now that we do have a workable budget, I feel at least somewhat justified in sharing our approach in the hopes that it might demystify the process for others, particularly those who - like us - are trying to claw their way out of debt and need a budget to help keep them on track.

So here it is (drumroll):

The $76K Guide To Making A Simple Budget 

Step 1: Before you make a budget, track your expenses for a month.

This may sound like a drag, especially if you're raring to go, but you can streamline the entire budget-making process by keeping a month-long record of how you're spending your money. Either in a notebook or in a spreadsheet (or with software like Mint that tracks your spending for you, though I personally find that this puts too much mental space between me and my spending habits), write down every single thing that you pay for - bills, rent, mortgage, insurance, random fun stuff, going out to eat, etc. - including the date and the cost down to the penny.

At the end of the month, group your expenses into categories and calculate the total for each category. These categories might include the following:

  • Rent/Mortgage
  • Utilities
  • Groceries
  • Phone
  • Insurance
  • Internet
  • Pet Needs
  • Household Items
  • Miscellaneous/Fun 
And so on. 

As you'll see below, having this record on hand will take some of the guesswork out of your budget. It will also help keep you honest about what you're actually spending (and when it comes to budgets, being honest with yourself and how much you're likely to spend on various items is crucial to your success).

Step 2: Commit to being flexible.

Don't feel like you have to come up with something that you're going to use indefinitely. Especially at first, budgeting is an iterative process. There's a very good chance it's going to change, and you're going to want to be okay with that. Don't get too attached.

Step 3: Figure out how much take-home income you're bringing in every month. 

You might know this number like the back of your hand, but when we were getting started, I did not. If you earn a regular salary, use your paycheck stubs to tally your take-home income. If you work as a contract employee and your income varies each month - which was initially the case for us - you'll have to estimate your expected income based on your past experience and current contracts. Be conservative when making those estimates. (I'd be happy to talk more about budgeting with contract income if anyone's interested.)

Then record your total projected income. We use a spreadsheet in Excel for this purpose (see example at the end of the post).

Step 4: Identify your recurring fixed expenses.

Fixed expenses are those that recur every month in the same amount, and their predictable nature warms my little Type A heart. Our fixed expenses include our rent, phone bill, insurance, Netflix subscription, and debt repayment. (Calculating the amount you can devote to debt repayment is a topic for another post; for the purpose of brevity, I'm going to assume that if you are making payments, you've already figured out what you'll pay each month.) You can include savings here, too, if you're committed to saving a specific amount.

Use your bank statements, bills, and/or your spending record from Step 1 to determine which expenses are fixed and how much they cost each month. Write them down. (Again, see example below.)

Step 5: Identify your recurring variable expenses.

Recurring variable expenses are those that appear every month but that are not the same every month. Ours include electricity, groceries, gas, and pet needs. Our "miscellaneous fund," the money we use for fun stuff like going out to eat or getting random home supplies, is also included in this category. (Other people have a different approach to this, but for us, we learned we were more successful when we gave ourselves some leeway in this area and didn't try to break it down too much.)

For me, this was the most challenging part of budgeting when we first started: recurring variable expenses have a nebulous quality to them. With experience and careful record-keeping, though, dialing them in has become easier.

You can use your spending record to identify what these variable expenses are and ballpark how much you need to allocate for them. Again, be honest with yourself: if you spent $500 on groceries last month, allocate $500. Don't try to convince yourself that you're suddenly going to make do with $300. In future months, you can fine-tune the numbers and try to cut costs a bit. For now, though, set yourself up for success by being realistic.

The good news about recurring variable expenses is that it's here that you'll have some wiggle room to cut costs if you want to - like finding ways to save on the energy bill or slice the fat from your grocery budget.

Step 6: Add in your one-time expenses.

Every month is different. Sometimes your cat is due for her yearly checkup or the car needs an oil change. Sometimes you'll need to buy new clothes. Sometimes you'll need to purchase school supplies. Sometimes you'll be hankering for a sleek new haircut. Again, be realistic about what your needs (or wants) are in a given month, and accommodate them in your budget.

Step 7: Calculate the total and make adjustments

Time to tally it all up and make sure the numbers work. Compare your budget total to your income. If your sum exceeds your income, you're going to have to make cuts somewhere. Your variable recurring expenses - particularly your miscellaneous or fun fund - would be a good place to start. Other folks have found ways to reduce their grocery bills by tens of dollars every month. You can also take a look at your one-time expenses: perhaps some of those can be put off for now.

If your income exceeds your budget, you get to decide how to deploy the extra moolah! For us, any surplus goes towards debt, but if you're debt free, consider socking it away into savings or an emergency fund. Don't create random frivolous line items because you feel flush with cash.

Step 8: Continue to track your spending.

It may seem like a pain, but keep recording your expenses down to the penny. As you pay your bills and make purchases, compare the reality of your spending with your budget. I handle this by creating two columns in our budgeting spreadsheet: one for projected expenses, and one for what we actually spent. Then I compare the two at the end of the month. If I find that we spent more on a certain category than we'd planned, we take note of that and adjust accordingly in the following month.

Here's an example of what the budget looks like:

So that's how we budget. And although the tracking process may seem arcane to some, it really helps us stick with it.

One last thing: for me, budgeting felt completely overwhelming at first, but the longer we've done it, the easier it's become. In our first few months, we had to make repeated big adjustments to the budget. Now the adjustments we make a relatively minor, and mainly for one-time expenses. The moral of the story: it's a messy process at first, but don't give up. Refine, refine, refine.

What about you? What's your budget strategy? What tips would you share with newbie budgeters?


  1. I found that I need to tweak the budget every single month. I have a basic framework for it, but each month has some expected differences that I can anticipate plan for. When I was really on the ball with things, I would track and record my expenses daily - this was a great way for me to be able to make mid-stream adjustments, as needed. I don't do that any longer, but only because there's a lot more wiggle room in our budget these days.

    1. Yes! That sounds similar to our approach: the monthly framework stays the same, but the budget is flexible enough to accommodate month-specific needs.

  2. What do you do with unexpected expenses? I've just been hit with an $800 medical bill. Actually, every month seems to be something that throws me several hundred dollars out of the budget. How do you work these unexpected things in?

    1. I budget for the unexpected. Seriously. I now have a big enough emergency fund that I don't set money aside monthly for things like that medical bill, but I still budget for what I call "slush." I also try to set a bit aside every month for things that are sort of expected-unexpected, like car repairs -- don't use it every month of course, but the theory is that it builds up over time and you use it when you need to. In your situation, I'd say budget $300 a month for "weird stuff" and see if patterns develop over time (=was this really a one-time thing, or is it an ongoing category like "school expenses.")

    2. Hi Anonymous! I totally get it - we have recent medical expenses, too. This is where having an emergency fund is critical: that way, when the unexpected happens, your budget won't get derailed.

      Two pieces of advice: (1) Contact your medical provider, tell them you need a payment plan, and tell them what you can pay per month, even if it's just $25. That is what I am doing with our medical bills. I have heard that most doctors and hospitals are amenable to this as long as they get paid (apparently, a lot of people just... never pay). (2) Start building an emergency fund. Put all of your extra cash and savings-allocated money into that fund. If you have credit card or other debt, pay the minimum on that debt until you have at least $1K in your EF. (That said, I now plan to build my EF to a baseline of $3K, because $1K doesn't feel like enough of a cushion.)

    3. Thank you both so much! This is really helpful. I do have an emergency fund but wasn't sure this qualified as an emergency. C is right in thinking I can build an expected-unexpected fund (car repairs and quarterly car insurance could also go in here). Thanks to both of you for the help.