Budgeting is a "b" word to most people. Chains... No freedom to spend anything... Restrictions... Doom!
A budget is simply telling your money where to go.
The Four Walls
Dave Ramsey talks, concerning budgeting, about taking care of the "four walls" before anything else:
Food - grocery store food, not restaurants
Shelter - rent or mortgage including utilities; taxes and insurance if your house is paid off
Clothing - most people have enough already
Transportation - take care of what gets you to and from your job
When these four walls are in place, you have food to eat, a place to live, adequate clothing, and a way to get to work. Those elements satisfy the basic needs we have that enable us to fight another day.
Beyond those four walls are all the other areas with the Debt Snowball being the chief goal until all consumer debt is paid off. I will explain this at the end in a note.
How We Budget
We have used different methods for budgeting. Currently, I list the expenses according to each week of the month, plus the income we expect on those weeks. It helps to see ahead of time where the money needs to go.
Using the weekly method and looking at the calendar helps me to remember birthday parties, sports and school activities, oddball bills, and other miscellaneous expenses that are easy to forget until the day before.
One important factor is that Kris and I both get a certain amount of pocket money each week which keeps us from busting the budget in other areas. He has lunch-with-the-buddies money, and I can get my wonderful 6th Street Coffee in Peru without feeling badly about it. Or we can save it for something fun.
Kris's income is predictable every two weeks; mine is sporadic because of owning my own business. Although all the money technically goes into the same pot, we use Kris's check for daily living, and my income fills what I call buckets.
Buckets protect our emergency fund. The buckets are basically extra bank accounts we use as sinking funds beyond the emergency fund. Those buckets are:
Home and Car Repairs
Upcoming Bills (particularly annual bills)
Vacation (this sometimes gets used as a house project fund)
Other Savings Goals and/or Retirement
Having these buckets full means the emergency fund is left alone in case something disastrous happens.
Fund the four walls
Give (to church or other organizations)
Fund the miscellaneous expenses
Fill the buckets.
Then stick to it!
Note: The Debt Snowball is listing all debts (except the mortgage) smallest to largest regardless of interest rate. This would be cars, credit cards, student loans, IRS, medical, etc. Pay minimum payments on everything except the littlest one and pay that one off as fast as possible with every extra dollar. Then roll those payments into the next smallest debt, and pay that off as fast as possible. And so on through to the last debt on the list.
An exception to this snowball is IRS debt. That takes precedence over all others and should be attacked first. The government has a far-reaching arm to make your life miserable if you don't pay them first.