I thought some of you may be interested in the process we (my wife and I) use to budget. FYI, we've done this for years and have a bit more budget freedom these days than what we did when we first got married, so some of this won't apply to people just starting out on a budget, those deeply in debt, etc. who will need to monitor their spending very closely. Anyway, here's what we do:
1. At the end of the year, I look at what we've spent the previous year. Since I use Quicken to track all our spending, this is rather easy.
2. I set up a spreadsheet (by copying last year's model) that lists all our expenses and income sources.
3. I take the information from #1 and put it in the spreadsheet. I list income and expenses by month.
4. I make any needed adjustments. For instance, I may think some categories need more money and others need less. I make the appropriate changes.
5. I look and see where that leaves the bottom line. If I'm negative, I need to cut expenses. If I'm positive, I can save more.
6. Knowing I'm ok for the year, I go six months without referring to my budget. I have a general sense of what we have to spend each month on each category, but I don't hound myself or make daily comparisons to how my spending lines up versus my budget.
7. In July, I re-do the budget, updating it for the first six months of actual spending, then repeating steps #4 and #5 above.
8. That's it. The rest of the year is on auto-pilot.
As I said, we're a lot more relaxed now than we used to be. Early in our marriage I did monthly budget updates -- we had to since we had debt we wanted to pay off and didn't have any surplus income as a cushion.
For more on budgeting, see these posts: