Personal Finance – Phase 4: Creating a Budget

In last article, we discussed prioritization of money and changing your mindset into using a faith based approach in spending. In this article, we use the information we have collected, and the proper mindset to develop an aggressive, yet realistic budget to achieve your financial goals.

In building this financial, once you have the foundation laid (see last article), you can start building the structure. First is a mindset that the money is to work for you. You are the one in charge of where it goes. If you notice the diagram, the budget is symbolized as a wall, one of the supporting members of each step to your financial development. While I have not taken this seminar in its entirety, I have a strong suspicion that the budget will be revisited frequently.

Live a Balanced Life

Imagine yourself 30 years from now, sitting in your rocking chair, reflecting on your life. If you continue your tragectory in life as it now is, how would you say you did? Do you feel like you spent your time wisely? If not, what could you be doing different to live a more meaningful, enjoyable life?

Dallin H. Oaks, a prominent member of our church once spoke on properly prioritizing things in our life.

Find out what are the best things in life, and put your focus there. If we properly prioritize our spending of time and money for the best things in life, we can maximize our potential and enjoyment in life.

Creating a Budget

A budget is a plan. It is a tool to use to build financial security, to direct how money is spent to maximize the best things in life, and reduce the frivolous things that do little good. Creating and sticking to a budget does take work, but it will serve as a guide in your life, to help you exercise self-control. If done properly, it will reduce contention and bring a spirit of love within the household. At the same time, money will be allocated better to build emergency funds, pay down debt, and increase future investments.

A budget changes with time and must remain flexible. Unexpected costs will arise, and money will have to be transferred from one category to another at times. Don’t give up. Over time, the adjustments will work out and you will develop an effective budget.

First off, look at the data you collected this past month and how money was spent. There are fixed expenses, and flexible expenses. Fixed expenses include obvious things like mortgage, debt payments, savings, and some utilities. Variable expenses may include some other utilities like electricity which you can reduce what you use and change your bill. Entertainment, food, clothes, etc. are also included.

In this example budget, income is first, then money is taken out, with fixed expenses first, and more important expenses prioritized. I would do this on a monthly basis, as most bills occur monthly.

Description Type Income Expense Balance
Income F 5000 5000
Charity F 500 4500
Savings F 500 4000
Mortgage F 1500 2500
Car Loan F 300 2200
Phone F 50 2150
Food V 400 1750
Gas/Parts V 250 1500
Clothes V 250 1250
Entertainment V 500 750
Miscellaneous V 750 0
Balance 0

As you work out your budget, try to balance it out. During some months you may find you have more expenses than income. In June, for instance we have an annual car insurance bill. There are two ways to do this, earn more income or spend less. We will “earn” more income by pulling out of savings that month. Otherwise, we are going to put everything we can into savings or debt payment (within reason).

Start off by putting in the numbers you calculated by last month’s expenses. (You should have figured this out already if you took heed to the first article in this series). Next, with your wife, fill out the following questionnaire:

How do I feel about my spending? I spend too little I feel good about my spending I spend too much
Eating out at Restaurants
Quickie Mart Snacks/Tobacco/Alcohol
Household Items
Cell Phone

Once you are done with this, discuss with her and adjust the numbers to your budget accordingly. She must be on board at this point in order to have an effective budget. Once you two are done with this step, talk about your budget with your children to get them on board. Hold a family council and show them the reality of your income, your expenses and how you are planning to change your spending habits to improve your life overall.

My wife and I have created a budget and at the same time, tracked our expenses. (Feb18Budget)

If you will notice, January did not have a budget. We started this seminar and tracked expenses for January, then we used those numbers to create a budget for February. At the time this article is written, I am using February’s data, and some planning to refine March’s budget. On the left side is variable expenses (for the most part, tithing was put there before we knew to separate into Fixed vs. Variable expenses). We previously had a bill spreadsheet to keep track of what bills were paid. This is how we did it, however is best for you is fine. Also, you may notice we did not zero out the budget, this is a refinement I was unaware of when we created it. The March budget is zeroed out.

My wife and I have done these steps and I can tell you that it works. We have this spreadsheet where we track our bills, investments, goals, budget etc. It has been a continuation of budgeting attempts I have made in the past. But since this class, we have added on the budgeting comparisons with our spending reality. That, and with updating spending on a daily basis, we have eliminated confusion and guesswork to our finances.

This Week’s Challenge

This week, your challenge is fairly obvious. Use the spending data you have to come up with a reasonable, balanced budget. As you continue to track your finances and fine tune your budget, you will have a valuable tool to help you work towards financial peace.


Author: Jim Johnson

As a man in his early 40's, I grew up on a dairy farm in an irreligious home. Disgusted with the choice of women out there, I looked into religion to find a worthwhile mate. At 23, I joined the LDS (Mormon) faith, married, became a civil engineer, and now have six children. My favorite things are puppies, long walks on the beach, and the color blue (not really).