Before I even get started on this post, just a friendly reminder: I'm not a financial expert. I'm just a person who's right there with you, making the same mistakes, feeling the same stress. So I'm sharing what works for me.
Now that we have that established, let's get into the simplest way to set up a budget. Very simply, you need to look at how much total money you have going out in bills vs. how much money is actually coming in. To get started, print off a few copies of my budget tracker.
You will be using this same tracker two different ways and may need a couple of rough drafts for the first go.
Start with writing the month your budgeting for at the top of the sheet. Now, write in every actual bill that is going to come due in that month (rent, utilities, insurance, etc). Do not write down groceries, gas for your car, or those sorts of things. We will budget for those, just not at this moment. As you write these hard bills down, be sure to note the due date in the column to the left. To the right, you have two more columns. One if for minimum payments (for credit cards) and the other is for the total amount you owe on a particular account. For example, when you write in rent or mortgage, you don't need to fill in the minimum column because you have to pay the whole amount. You would just write the total amount you owe for that month into the far right column. However, for a credit card bill, you would write in the minimum amount you owe that month (say$25), followed by the total amount you owe on that particular account (say $1500).
If this particular part of the exercise has just made you a bit shaky, I get it. You are looking your financial situation right in the eye and you might not like what you're seeing. Take a breather and come back. There is more work to be done.
The next step is more about housekeeping: rewrite that worksheet, but with all of the bills in date order. I like to skip lines between the different dates (bills due on the 1st, skip a line, bills due on the 2nd, etc). Now you have a clear view of your month! There, that wasn't so hard!
Now we get into the nitty gritty budget. Grab a blank sheet and write down the dates of your pay periods. For example, if you are paid biweekly, write down the Friday you get paid to the Friday of the next time you get paid. Now write in every bill that falls in that pay period. Remember, that includes the following Friday when you are paid. Why? Because you have to pay that Friday's bill before that Friday to avoid incurring a late fee.
Now that you see how much money HAS to go out, grab a calculator, type in how much money you are getting paid that Friday, then go down the list and deduct the minimums from that amount. You now see how much money you have for everything else until you get paid again. If you don't have any money left over, take a look at your bank account and add in how much money you have there. Hopefully you will now have enough to cover your bills and have extra to handle the other things.
So why did I make you do it without whatever you have in your bank account first? Because I want you to see if you are living within your means. Yes, you have money in your account, but I'm encouraging you to shift your thinking to what you can do solely with the money you have coming in. This is to help build a cushion. I also understand that you will have to dip into that occasionally. Sometimes the bills fall heavier in one pay period over another. This is still a useful tactic.
Now that you have the first pay period of the month done, do it again for the next one (and all remaining pay periods of the month). While you may not know exactly what you're getting paid every time, the goal is to at least estimate. You're trying to find out where you will have larger amounts of money left over.
The goal for each pay period is to take the leftover money and use it first for the important things (food, gas for your car, building up your savings, etc), Then the remaining can be used for lower level necessities and the fun stuff. If you had to dip into money already in your bank account just to cover the bills, you need to keep your spending very low and skip the fun stuff. But this is also why I suggest you do this with all the other weeks in the month too. You will see which pay periods have slack so you can start budgeting in fun.
The great news is that once you have created this template for one month, you can actually budget your whole year this way. Bills usually come due at about the same time (rent and credit cards are certainly due the same date every month). You can create at least rough drafts for the remaining months of the year, as well as your sheets for each pay period. I keep mine in a binder (with a divider between the batch of months and the batch of weeks).
There is one final step in this phase of budgeting: You've gone to all this effort to figure out when you're bills are due. Now, make sure you're paying them on time. Make sure you are logging into your accounts no later than the day before they are due. A lot of times you won't be able to pay and have it credited on the day it's due. Set a reminder in your phone, on your calendar, or, like me, write it in your planner:
As you can see, they are the green rectangles at the bottom of the day. I don't need to say what the bills are. I have a pay period sheet that tells me that. I just have to remember that there are bills due the next day and I need to pay them! After all, what's the point of budgeting if you forget and then get socked with a late fee or a pay by phone fee?
I have a lot more next-level budgeting tips, but these basics might already be stressing you out. Take some time, live with this for a while, give me time to even compose another post about it, and get ready. Because if you're looking at a lot of credit card debt, I want to share some tips I've used that I hope will help!