Your Family Budget: Step by Step

by banoootah_qtr

A budget can help you to plan for expenses and know where your money is going. It’s a fantastic tool — as long as it doesn’t get too complicated.

Karen recently sent this question to me:

I’m wondering what steps you took to get your family on a budget. How do you know how much should be spent on each “department” such as cell phone, electricity, car payment, insurance etc. How do you have it all categorized? I’m just feeling so overwhelmed with getting the budget set up, but I know if I will stick to it, we will benefit.

When I make a budget, I focus on two kinds of amounts:

  • Planned amounts- what you think your income and expenses will be.
  • Actual amounts- what the income and expenses actually were.

If you’ll notice, I didn’t mention “ideal amounts.” A budget is a planning tool, and it is most effective when it is realistic. It’s not the place for what you wish the numbers were. Once the budget is set up and you can see where your money is really going, there will be plenty of opportunities to change your spending.

If a budget is too complicated, you won’t use it, so let’s just go through the steps to create a simple, workable budget. You can use a piece of paper, a spreadsheet, or budgeting software.  

Most people find it easiest to look at monthly amounts since so many bills are paid once a month.

Start with your income.

Add up your expected monthly income, plus any side income. If you are paid at odd intervals, just get as close as you can. You might want to take your annual income and divide by 12. If your income is uncertain, then choose an amount that is realistic, but conservatively low. You can always adjust it later.

(I am using made-up numbers for these examples. They’ll vary from person to person because of differing priorities and situations. There’s no single answer for what an amount “should” be.)

In the example above, I subtracted taxes, insurance, and 401(k) contributions — all the things that come out of your paycheck before you get it. What’s left is the Monthly Net Income to cover all of your expenses.

Next, list your expenses.

It’s tempting to set up a lot of categories, but don’t go overboard. If you’re doing it on paper, just use general categories. If you’re using software, you could create more as you need them.

I tend to use these general categories:

  • Tithes and giving – I wrote about tithing earlier.
  • Debt payoff – Paying off any kinds of debt should be a high priority. It will free up your income for future opportunities when you are not burdened with the monthly payments and interest.
  • Home – Rent or mortgage payment, insurance, property taxes. You could even include home repairs and furnishings in this budget category.
  • Utilities – Monthly bills for water, electricity, gas, phone, internet, cable.
  • Car – Car payments, gas, insurance, repairs, registration, inspection, tires.
  • Healthcare – Doctor visits and prescriptions.
  • Food – Groceries and dining out. I separate the two because groceries are essential, but eating out is an indulgence.
  • Personal – Clothing, hair cuts, wants, entertainment.
  • One-time or big expenses – I set aside money each month for any big-ticket items before buying them.
  • GraceA buffer for mistakes and unexpected events helps you stick to your budget.

The amounts that you think you will pay go in the Planned Amounts column. During the month as you go through your receipts, you will update your budget with the Actual Amounts in the second column. The main goal is for the expenses to be less than the income.

If you want to be more specific in your categories, your budget might look like this (again, these numbers are just made up for example): 

Frequently asked questions about expense amounts:

What if the amounts change each month? For bills that vary by a couple of dollars every month, like the water bill, I plan by rounding up a few dollars from the average amount. The electric bill is always higher in the summer, so you could budget for the higher amount, or request average billing. You can always adjust your budget for seasonal changes.

Where do I put household items like toilet paper? Wherever it makes the most sense to you. You could include them with the groceries or have a household supplies category.

My grocery bills vary from one month to the next since I like to stock up. You can still use an average amount. In the following months you should be able to spend less on food so it will balance out.

How do I know how much to plan for single or big expenses? You’re mostly limited by how much available income you still have after other expenses. Think ahead how much you plan to spend at Christmas, for home upgrades, or for a new timing belt on your car in the next year.

What about bills that I pay twice a year? You can set the money aside in advance. Consider having a monthly portion automatically drafted into one or more savings accounts. You want to have the money ready before you need it.

What if the expenses are more than the income? It’s time to trim, drastically if needed. A serious look at needs versus wants is hard but necessary.

How to use your budget

Each week, enter your actual expenses into the second column. Hopefully they won’t be too different from your planned amounts, but you can tweak your budget as needed. If you need to decrease one amount to add to another amount, do it.

It can be very eye-opening to find out how much you are spending on eating out, clothing, or other things. As you get a sense of where your money is going, then you can decide you have areas you want to cut back on.

One final suggestion: After paying off debt, any money left over should go into savings and investments instead of thinking of it as “free spending money.” Why? Putting extra money away during months of excess will carry you through the lean times. Unless you want to have a roller coaster of highs and lows, feast or famine, setting money aside when there is extra will give you a sense of stability and peace. Besides, fun and entertainment have already been included in the list. You’re not having to go without.

Karen, I hope that answered your question thoroughly. Readers, what other ideas would you suggest?


If you’re new here from MSN Money — welcome! I hope you enjoy looking around, and be sure to check out the comments for each article. (The comment link is under each title.) You’ll find a wealth of knowledge shared by other smart readers.
About Rachel

I write about practical tips that will help you simplify at home. Connect with me on Pinterest and Twitter.


  1. Pay yourself first. We started doing this years ago. When I take my paycheck to the bank, I make a deposit in our savings accounts — ours and our girls. It’s the same amount every 2 weeks. If you’re not doing this, it’s hard at first but after a couple of months it is habit and it’s nice to see the balance in the savings account grow. Also, if you have children, I highly recommend setting up a 529 plan for their college education expenses. When grandparents ask for gift ideas, don’t forget to mention this to them. Extra deposits can be made anytime. We have an automatic monthly draft set up for our girls’ 529 plans.

    Another thing we’ve done is when we receive a payraise, we increase our 401k withholdings and also the amount we put into savings. No need to spend all of the extra $.

    Nancy’s last blog post..Tomatoes + Blender

  2. Our budget is similar to yours. However we do have one for each month. The reason we do this because I like to compare previous months on certain categories… ie. telephone, heating. etc. My husband does the budget. He even comes up with pretty pie charts :)

    Included in the budget information is important credit card info – such as due dates and interest rates. We record these because they can change.

    Our goal right now is reduce credit. Hubby has a credit spread sheet. It’s an encouraging tool to use to see how our debt is decreasing over time.

    Since getting rid of our mini van this past month we now have started a small savings account at ING. It will be nice to see this grow.

  3. smallnotebook says:

    Nancy, I think those contributions make great gifts for children.

    Dana, I like to compare to the previous months too. I like to see trends, and seeing it visually really helps me.

  4. I stumbled upon your site a few months ago, have read all your posts and love it. I can honestly say it’s my favorite one to read (or check) each day. Thank you for putting things so plainly and practically.

    My husband and I have stream-lined our budget over the past 5 years and have come up with a great system. It’s based on the Dave Ramsey system, but all electronically. Our bank allows us to have as many sub savings accounts as wanted and labeled however we want. So each pay period (weekly for me and bi-weekly for my husband) and a quarter amount of each bill is put in to it’s own savings account. Like you said, some fluxuate, so we figure high and have leftovers for the higher months or to put back into savings. This way when each bill comes, the money is there instead of trying to figure out where it’ll come from when the bill comes due. Whatever is left from my check after transferring to each bill account (utilities, school loads, insurance, day care, gas, etc), goes in checking and my husband’s check goes towards an account for our daugher, baby on the way, our smaller savings, fun account and money market.

    When we spend something on our credit card, we transfer that money from savings into a credit card account so when it comes do it’s not such a mental hit on the wallet.

    We do this all electronically, pay bills, transfer around to different accounts and we get checks from the bank so that we’re not waiting around for someone to cash it.

    We still tweak it here and there, but it’s worked out wonderfully for us!

  5. Thanks for answering my question on here. :) Nice job!
    Christie, I have heard of Dave’s book but have not read it yet. Heard great things about it!
    Does anyone use Quicken to manage their finances??

  6. I just found your blog and I’m loving it so far…. I am getting ready for an out of state move and I am a saver of memoriblia…. we are downsizing to a smaller home and I HAVE to get rid of stuff. I’ve been feeling at a loss when it comes to the momentos… I loved your post on sentimental items. Thanks!

  7. tabbyintexas says:

    thanks, i’ve always wondered how to get on a budget. I do a mental budget cause my utilities and rent never change and i don’t use credit cards at all.
    I think i should start writing it down just to maybe see where i’ve got some leaks in my financial boat.
    I do have one problem though. I allot 400 for groceries a month. What I have left over I spend frivilously; it feels like found money. I’ve tried saving it for a trip but i spend it frivilously on the trip!

    My tithes come first too!

  8. Good for you on the tithing first Tabbyintexas! I have always given offering but have really never tithed my 10% as I should but i started this month tithing. I just need to get my budget finished and put in place! :)

  9. Wow, I’m so glad I found you! I came across your link from someone’s blog who loves your blog. Anyways, I’ve been struggling to find the right way to work our budget (my husband and I) because each pay check is a different amount… but I am working on it, and I think this will help. Thanks! I’ll be back.

    Amy’s last blog post..inspiration sandwich.

  10. Love this post! I just redid our budget following the method you have here. I know it’s a common one, but reading today gave me the motivation to sit down and redo it.

    And I realize we need to be better at balancing since the majority of our pay comes at the beginning of the month, but the majority of our bills come in the middle. Time to start shifting that money into savings so it’s there when the time comes. LOL

    Tsoniki’s last blog post..Tragedy Aboard USS Neb

  11. Nice job. We live in a high cost-of-living area, so the numbers seemed almost comical. For instance, with heat or a/c our electric bill is nearly $400. But that’s a whole ‘nother story and very typical for our area.

    Great tutorial!

  12. We have certain things that we save for added to our budget: for example, we pay our car insurance yearly, so I figure out how much I need to save monthly for it and put it in a category under savings. We also put a certain amount for Christmas gifts, car license and registration, home repairs, etc.

  13. Budgeting is something I’m terrible at and our finances show the result!

    I keep telling myself that I’ll get to making up a budget, but hmmm . . . it doesn’t happen.

    Vintage Mommy’s last blog post..Adoption Book Review: The Day We Met You

  14. I thought your focus on planned amounts- and actual amounts- was very insightful!


    Devin Willis’s last blog post..Useful Business Intelligence Resources + MANY more

  15. Smallnotebook, how do you figure in your Tithe? Do you have it figured in as a monthly bill?

  16. smallnotebook says:

    Karen, I just have a bill category called “Tithes and Offerings” to subtract the amount. So in my budget it looks like the other bills even though it’s really more significant.

  17. Hi there! Great article. I was just wondering if your examples were a spreadsheet program or another program like MS Money?

    Michelle’s last blog post..Lakeshore Learning

  18. smallnotebook says:

    Hi Michelle, the examples in this post are from a spreadsheet. A few years ago I kept my budget in a spreadsheet form similar to this. I still use it to get a quick simplified glimpse of my budget, but now my husband and I mainly do our budgeting in the accounting software MS Money.

  19. Great post and alot of good information. I’m also interested in ways to save money and have some pratical tips, others might be interested in. You can read them at

  20. great post! Yes, we are now working from a budget and it feels so much more freeing!!! We have a spreadsheet online that we add in the numbers at the end of the month but during the month we have a snap-shot version of our budget printed on the refrigerator for those varying expenses — (groceries, fun, gas etc) to keep track of how much we are spending *during* the month, so we are more likely to stay on or under budget.

    Also, an online budgeting tool that is pretty cool is and it’s free.

    Last, any extra money (from being under our budget), we have planned to take half of it and give it to someone in need at christmas time (trying to employ this character trait in our son) and the other half we get to do something special as a family….so it’s a huge incentive to be under budget!