Frugalista: How to Make a Budget

Y-rd is starting a new feature about saving money. This will range from small things (change jars) to bigger things (401(k)s). It came to my attention that I love being frugal, so why not share some tips?

Let’s begin by mentioning just how goshdarn easy it is to get control of your money. Have you ever even made a budget? There are many ways to do this; here’s one simple way. (Don’t get too crazy about this...You can round numbers. The point is to get a general idea of how much money you have to spend every month on the fun stuff.)

1. List all your fixed expenses (college loans, rent, rent insurance, credit card, utility bills, transportation, any regular medications). You will have to guestimate on how much you spend on some utilities like electricity. Your transportation costs probably also vary month to month, especially if you drive a car. Allot more than enough to each category.

2. List all of your "sorta fixed" expenses (stuff you don’t need but stays relatively the same every month). On my list, that means Netflix and a gym membership.

3. Subtract the above from your after-tax paycheck. Now some of these things might be already factored into your paycheck pre-tax (e.g. if your work has a transportation program); if so, you don’t have to subtract them again. Ideally you are already contributing money to your 401(k) and have health insurance, and we are looking at your paycheck after those things have been taken out.

4. Voila! Now you have your “expendable income.” That’s how much you have to spend each paycheck. Not so fast, though. That includes food and visits to the doctor (unless you factored those in before, but I didn't because these are too variable).

5. Decide what to save of this amount. Ideally you should be able to take about 1/4 to 1/3 of your expendable income and put it either to pay off high-interest debt (credit cards!) or into a savings account for emergencies or something special. Many people can’t save that much, especially if you live in a place with higher living expenses (I feel ya). Try to save something. Once you do that, now the rest is really expendable.

6. Break down your budget further. If you want, you can figure out how much budget you have in a week or a month. Yes, it might not be enough to support your lifestyle, and you might have to adjust your purchases accordingly. Being aware of how much you have to spend works wonders. You might go over and under some weeks, and that’s OK. To help remember how much you're spending, you can always try writing down each purchase on a scrap of paper, or if you want to be tech-savvy about it, you can try those fancy programs like Mint or Quicken.