What to Include in a Budget
I recently read in an article that 27% of Americans don’t think they need a budget. That’s close to a staggering 1/3 of the country! The reasons (or excuses) are varied and I’m sure part of it is that creating a budget that works can be intimidating.
Have you ever tried to create a budget that works? If you have, then you know that it can be a bit frustrating, especially at first. It seems to be inevitable to forget important expenses, which in turn makes our carefully laid out plan go up in flames!
In my quest to get a better hang of our finances, I know I struggled with this. A lot, actually.
I’d have my monthly budget all nice and pretty, down to the last penny. Only to have Netflix charge my account when I least expected it.
It’s not like the charge was a surprise. I mean, we know we have a Netflix account. What happened was that I did not add it to our list of outgoing money, and since money is usually tight, and we budget every cent, then that meant there was no money for Netflix.
Or some other bill would suffer instead.
I have found that most people remember the most basic, and obvious things, like mortgage or rent, utilities, groceries, and of course, their third lung, A.K.A. their cellphones.
But when it comes to creating a budget that works effectively for you and your family, there are other, often ignored or forgotten expenses that must always be included. It takes quite a bit of practice to get the “near perfect” budget. And even then, chances are, you will have to revisit it over and over.
In fact, you should revisit your budget constantly.
The reason for this is simple: life happens. You could be slapped with a new medical bill you didn’t have last month. Or maybe, after you budgeted for groceries last month, you realized that you just didn’t have enough money for necessities, like toilet paper, toothpaste, etc.
To have a budget that truly works for you and your family’s needs, there are certain things that must not be ignored. Some are rather obvious. But trust me, there are little things here and there that can make a good enough budget go kapoot.
Here’s what to include in a budget to make is work for you
Mortgage or rent
This is the most obvious of them all. You have to make sure that your shelter is taken care of. Even if that means that your grocery budget has little room for extras. Having a secure place to live is probably the most important of all your monthly expenses.
Yes, having shelter might be the most important piece of your needs. But having electricity, running water, or gas is a must. Try as you might, not having electricity to cook, or even keep the refrigerator going could be hindering. And we need water to be able to wash dishes, flush the toilet when needed, and drink. Not having running water is almost a health hazard. As for gas… well, most places here in the United States go thru long periods of cold weather, and if your heat is gas powered, then you can certainly appreciate the need to pay this bill on time.
In this category you should include things like cellphones, internet, and cable. However much you think you actually need these things, you could totally survive without them. Trust me. Even your cellphone can be easily replaceable by a home phone, should you ever be on a pinch.
Nevertheless, if some or all of these are part of your monthly expenses, then they must be included in your budget. Remember, failing to pay doesn’t only mean they’ll cut your service. It also means late fees, which no one wants or needs.
When budgeting for groceries, you must always budget according to family size. Also, keep in mind your financial reality. As much as we’d all love to be able to eat only what we want, we simply can’t budget steak on a burger income. Rule of thumb is $25 per household member per week, but if you shop sales, and use coupons, you could work with way less money than that.
As a side note, it is up to you if you want to include toiletries in your grocery budget or not. However, if you want this in a separate category, then add that right below your food grocery budget.
Having insurance is kind of a need nowadays. After all, you wouldn’t want to be caught in an illness, a car accident, or an even bigger emergency. Therefore you need several of these, including but not limited to: car, life, renters or homeowners, and health insurance.
Whether your insurances are all bundled up on one monthly payment or you use separate companies, they should all be listed and accounted for separately in your budget. This is to ensure that all your ducks are on a row when it comes to your money.
This one line in your budget can be a bit tricky to figure out. To help you get the hang of it, tally up how much gas you spent last month and work from there. You could use your bank statement to help you with this if you used your bank card to pay.
On the other hand, if you do not drive, then you must budget for things like public transportation, or maybe even Uber or Lyft. These things add up quickly, and the least you want is to screw up your budget because you did not include them.
Include things like Netflix, Amazon (if on a monthly pay plan), gym membership, and any other regular monthly expenses that are not even remotely necessary. These are all expenses that you could do without, but if you want to keep paying for them, then they must be included in your budget.
When you are on a tight budget, things like private school are almost certainly out of the question. However, college tuition, educational courses or continuing education, etc. might be things that are either a required expense as part of your job, or necessary to advance in your career.
If you are paying for these out of pocket, then they must be included in your budget. Even better, if there is the possibility of this happening in the near future, create a sinking fund for it, so the expense doesn’t catch you by surprise.
Extra-curricular activities tuition
Things like dance, sports, music lessons, etc must be included in this category. The reason why this is a separate category from school tuition is that extra-curricular activities are not a necessity. Yes, I get that we want our kids involved in some kind of activity that enriches their lives. However, when push comes to shove, something’s gotta give. And the money spent on extra-curricular activities might be it.
On the flip side, failing to budget for these, could result in unnecessary charges. Or worse, being forced to stop attending the activity, and hindering any progress being made.
Oh yes, you must also budget for entertainment purposes. After all, who wants to work work work, and no play? No one, that’s who.
However, just spending whatever amount we want on fun could also become a big problem. That’s why we should always budget a specific amount of money to spend on things like going to the movies, renting movies, bowling, skiing, or whatever other activity your family likes to do for fun.
This is literally the money you get to blow on whatever crap you want. Yes, this is where the money for that coffee shop stop comes from. Or the pocket where you dig when going to the craft store for supplies you don’t need.
The blow money category exists for one reason, and one reason only: to give you a bit of spending freedom. There are a few sub-categories that can be included in the blow money category:
Busy families have a tendency to be the biggest spenders on eating out. The reason for this is, that if you work, have a family to care for, and do any other activity, they have little to no time to cook a meal. I totally get it. There has been times when even the more carefully planned out meal plan just won’t cut it.
It is for those occasions that you should have a specific amount of money laid out for take out or order in food. That way, if you are forced to stop for a bite, you know how much you can afford, instead of having an extra expense take you by surprise.
In the other sub-category of the blow money category, you should include expenses like cigarettes, alcohol, weed (if it’s legal, for medical purposes, or that’s your thing 😉 ). Also, if you like to spend a bit of time at the casino don’t forget to include a set amount for that as well.
These things are far from necessary. Unfortunately, it is often the unnecessary that knocks our budget to the curb.
If you’ve never heard of sinking funds, they exist for one reason: so that those ongoing but not monthly expenses do not take you by surprise. These include, but are not limited to:
Recurring car expenses
As much as we might hate it, there are certain things that we must do every single year. Sometimes more frequently than that, to keep a car up and running. Some of these things are: tags, tires, brakes, windshield wipers, and more.
Since we already know we will need to do these things, why not be ready for it? Instead of suddenly having to suck it up and add a few hundred dollars to a specific month’s budget, why not just spread it out? If you take $400 (for tires), for example and split it in 12 (assuming you get paid monthly), it breaks down to just over $30 per month. Much more manageable, right?
Same for car tags, and any other recurrent car expense. It’s much easier to create this sinking fund, and be ready for when you need the money.
Nothing sucks more than having to fork out a ton of money for an emergency car repair. I am talking specifically about things that happen suddenly, and that we couldn’t avoid with preventive care.
Imagine that you get a nail in one of your tires. Your new tires to boot. You were proactive with making sure your replaced them before they gave out. Nevertheless, one got caught up on a nail, and now you must replace it or fix it, if possible.
While I am aware that in this scenario, you might be able to use your warranty, that might not always be the case. If you have a set amount set aside, a.k.a., a car repair sinking fund, then you could potentially avoid the hardship such an emergency could cause.
Every homeowner knows that one of the harder things about owning your home is taking care of all repairs. It’s nothing like renting, when 9 times out of 10 you simply have to call your landlord when something needs fixed. Such expenses could be anything from a couple hundred dollars to replace a leaky faucet, to a few thousand to replace a roof.
For renters this sinking fund should not need to be huge, but they should have one anyways. The point of this is, if you were in a position where you or another family member damages something in the home, you could always fix it or repair. By doing this, you will have better chances of getting the deposit back if you were to move somewhere else.
It can be very easy to over spend while Christmas shopping. To avoid this, set up a very specific amount to spend on each person you shop for. Once you have done this, add up the full amount you will need to make all your purchases, and split it so that each paycheck you take out only a small portion of money.
If you start this sinking fund right after Christmas, then by the time you are ready to shop, you should have all the money you need, instead of overcharging credit cards at the last minute.
Just like seasons, birthdays happen every single year, on the same day. So why not be prepared? Start pre-planning for what you will be doing for those days. For example, decide if you will have a party, go out to dinner, or maybe cook a very special dinner, followed by cake and ice cream.
Once you have done this, set a budget for each occasion and stick to it! Add all the budgeted amounts and split, just like you did for Christmas presents/expenses. It’s much more manageable to take out tiny amounts, than to get hit with a big extra expense.
If you have children, then you know it’s almost inevitable to get at least a few birthday/party invites per year. Having a sinking fund for these could only be helpful in keeping you on budget. No need to go overboard though. Just budgeting some $15-$20 per month should be plenty.
Even if your family is extremely healthy, having a sinking fund for medical emergencies is extremely important. Even if you eat healthy, exercise, and do all the good things, you could find yourself in a position when you need medical care.
A medical sinking fund could be used for things like deductibles, unexpected medical bills, or over the counter medication, such as cold medicine. Other expenses such as an emergency ambulance trip or any treatment or service not covered by your insurance will come out of this sinking fund.
What to Include in a Budget that Works
If you truly want your budget to work for you, you must make sure it is as complete as possible. I know some charges might seem minimal, like getting coffee from the coffee shop, because, what’s $5 going to do to my budget? Well, it can totally throw it out of whack, that’s what.
It is of course, necessary that you learn to not just put your complete budget on paper. Your budget will be your guide.
Also, a budget that it’s as complete as possible will give you a clear view of what your finances look like. I know how easy it is to just go with the flow, and swipe that card when you want something. Is it really worth it to risk being overdrawn for an non-budgeted “splurge”, though?
I’d say, it really is not. Bank fees are a damn pest.
Did I forget anything? How is your budgeting coming along? Are there other categories that you feel need to be included? Please, share your thoughts in the comments below. You never know who you might help with your insights 😉