Y.W.H. Budgeting 101: Bare Bones Budget
In the first installment of my YWH Budgeting 101 series, I will be explaining how I build my bare bones budget. This is the first step Justin and I take when we set our budget and financial goals.
How I build my bare bones budget:
When we sit down to set up my budget, the first thing we do is assess my current finances. Doing this helps us get a grasp of how we spend our money, where we can save more, and what our financial goals will look like. From here, we can figure out how much money we typically need each month to live. This is what I call our bare bones budget.
Our bare bones budget is just a starting place and is not set in stone. Once we have our bare bones budget, then we decide our financial goals. Depending on our financial goals, we may have to adjust our bare bones budget so that it alines with our goals.
Justin and I create one bare bones budget for our household, but for this post, I am going to explain how I would do it by myself.
What I use:
To get started, I grab:
pen and paper/spreadsheet
my bank statements (online or paper)
I start by listing all of my “firm” expenses. Firm expenses are just bills that are a consistent amount each month. This list includes my car payment, mortgage, and subscriptions. I can list most of this by memory, but I like to refer to my bank statements to make sure I don’t miss anything. I also like to list the due date for each bill. That helps with planning each paycheck, which I’ll cover in another post.
Then, I move on to all of my “soft” expenses. This is where it is essential to have my bank statement and calculator ready to crunch some numbers. Soft expenses are expenses that can vary month to month. Groceries, cleaning products, personal products, and gas/transportation fall into this category. Soft expenses can and probably will be adjusted when you define your financial goals, but we will get to that in another post.
First, I list all of the soft expense categories. Then, I go through and add an entire month’s worth of transactions that are in that category. If you feel like these expenses vary greatly each month, I would go 2-3 months back, add all of the transactions each month, and then average it. Once I have the totals of each soft expense category, I will write them down on my list. I tend to round up to the nearest 10, just to make it a little easier to total.
Now that I have all of my monthly expenses outlined, it’s time to calculate the total. The number I get when I add all of my firm and soft expenses together is the amount of money I need each month to live. And that is my bare bones budget!
Once I have my bare bones budget, I can see how much money is left over. To find that out, I take my total income each month and subtract the amount of money I need for firm and soft expenses. This total is the amount of money is money to play with. I can use it for fun stuff like clothes, dining out, trips, etc. and I can use it to put towards my financial goals!
In my upcoming post, I will explain how we determine our financial goals, how we integrate our play money into our budget, and how we assess and adjust our budget to align with our financial goals.