Building a Basic Budget — Part 2

Posted on Oct. 5, 2021

a hand putting coins in a piggy bankAs you consider creating your budget, consider that the best way to do this is by creating and sticking to what is called a zero-based budget. In such a budget, every dollar of income is given a purpose, whether it is to be spent on the mortgage, utilities, food, paying down debt, or even for savings. If expenses come in under expected levels, the extra money is added to savings, not spent frivolously.

In Part 1 of this series, we covered knowing both your income and your average expenses. If your income exceeds your expenses, you can save more. If your expenses are more than your income, you’ll need to cut costs to rebalance your budget.

It helps to put it all down on paper. Download this worksheet to help you get started.

As you’re filling in the worksheet, be sure to list recurring savings as an expense; you can set up a savings account and use direct deposit or an automatic transfer to regularly add funds to your savings account. This is how you “pay yourself first.” Remember, many financial experts recommend having savings of at least six months of expenses to serve as an emergency fund. After this, there’s always saving for retirement, large purchases, college funds, etc.

A family affair

Budgets work well when everyone in the family is on the same page. Kids don’t really get a vote on how much money mom and dad make and spend, but this can be a learning opportunity for your children. It will help them understand the benefits of having and sticking to a budget, better preparing them for when they are on their own.

Tracking your expenses is the first step toward taking control of your finances and making wise decisions.

Cost-cutting to the rescue

Here are some ideas to consider for reducing expenses:

  • Cancel a streaming service, and check to be sure you are using all of your services and subscriptions.
  • Adjust your thermostat and use ceiling fans to reduce your power bill. You can also check doors and windows to make sure they are sealed properly.
  • Cancel your landline and use your cell phone.
  • Postpone some clothing purchases or seek discounts and lower prices for the items you want.
  • Brown-bag some lunches during the week.
  • Bring your coffee from home instead of buying from the fancy coffee place.
  • Limit convenience store snacks and impulse buys.
  • Use a list, and don’t go grocery shopping when you’re hungry. You could also seek out coupons, but don’t buy something you don’t need simply because you have a coupon for it.
  • Watch that you’re not buying too large of a quantity of food at the grocery store and end up throwing food away.


Other savings opportunities

There are other things you can do, too. Get quotes(opens in a new window) on your homeowners and auto insurance; it could be that you’re overpaying. Utilize a cash-back credit card for paying regular bills and pay off the balance each month. Look into a personal loan(opens in a new window) to consolidate your credit card debt; you could save by reducing your interest rate, pay off debt sooner, and be able to put more toward savings. Even if you don’t consolidate, you can aggressively pay down your credit card debt to reduce and eventually eliminate that expense. Consider paying off the smallest bill first, and then applying those payment savings to the next smallest bill, and so on. They call this the “debt snowball method.”


A new way to manage your finances

Spending plans are not set in stone, and situations change. You’ll need to continue to track expenses and watch to see that some of your discretionary spending isn’t growing larger. Your goals might change after a major life event, like having a baby or changing jobs. Regardless, tracking your expenses is the first step toward taking control of your finances, and making wise decisions when life changes do occur.

While life changes may cause you to adjust your budget, it’s not advisable to do so simply to allow additional discretionary spending or make up for a lack of spending discipline. If you budget $350 for food each month and run out, don’t spend more. Eliminate going out to eat and raid the pantry until the next month. Only when a budget is followed does this powerful financial tool yield results.

If you wish to comment on this article or have an idea for a topic we should cover, we want to hear from you! Email us at

You might also like...

a mother counting money in front of her daughter
Building a Basic Budget — Part 1
4 minute read • Read Now
a woman working on her laptop going over her budget
Creating an Emergency Fund
2 minute read • Read Now
two people working on home renovation
8 Things to Do with Your Tax Refund
3 minute read • Read Now

Read more about...