How to set a budget—and why it’s important: Part 2

In my last post, I wrote about the personal method that I use to set up a budget that works for me. Today, we are going to look at another type of budgeting that uses charts (which you can find online or create for yourself).

For this example, I am reviewing the Dave Ramsey Monthly Cash Flow Plan which I believe is a very good way to look at your budget overall. There is a free template you can download to help you through this which can be found here.

As you go through this post, I suggest downloading the free template and printing it out so you can work on it along with me.

The Monthly Cash Flow Plan: Introduction

When you are in over your heads in debt, having a plan built by you and for you, can be the difference between merely surviving and thriving. I don’t know about you, but I choose to thrive!

Because I am kind of a cheapskate, I often look for free things. You can find a lot of free things online and I often do. Many times they are an introductory offer to a program that costs you some money, but that does not negate the value of the free item.

The Monthly Cash Flow Plan is an example of such an introductory offer. I do wholly endorse the Dave Ramsey Financial Peace University and I don’t get paid anything for telling you that or recommending it. I just really believe that the method works. I went through the course a few years ago and it was one of the best things I ever did as far as my financial life was concerned.

A group at the church I attended went through it together. It was a good way to do so because we were able to build from each others ideas, problems and triumphs.

I still have the kit that we received and go through it periodically to refresh myself on the concepts which ring true as much today as they did five years ago.

Let’s look at the components of the Monthly Cash Flow Plan and how you can make it work for you.

Getting Started

First off, to actually do the budgeting you will only need to use the Monthly Cash Flow Plan. That is the form you would have downloaded from the link above and should look like this:

This page has the basic instructions on how to fill out the form which does have a lot of lines, but you are going to look at your income and expenses in a way you probably haven’t looked at them before, so it needs to be as detailed as possible.

Let’s look at each step, shall we?

Step One

This should be pretty self-explanatory: Enter your monthly take home pay. That is the amount that you get after taxes. This is what you have to spend for the month on everything! It should include all sources of income. If you get paid irregularly (project jobs, piece work, freelancing, etc.) you are going to have to figure out your average. There are also forms available for irregular income planning here. It will look like this.

Step Two

Step two might be the hardest of the steps in this process. It involves breaking down your spending by categories and then subcategories. It will look like this:This is the place where the proverbial rubber meets the road. You are going to be filling out amounts for items that you probably didn’t even think about before. Like vitamins! I buy them every month, but I don’t think about them, they just come out of my miscellaneous category. Using the Monthly Cash Flow Plan, you won’t get by with that. Here is an example of some of what you will be working with:

Yesterday I was thinking about my bills and thought I had them all, and completely forgot about several small ones that I wouldn’t normally think about because they are very irregular like repairs on the car, oil changes, regular maintenance items that we just don’t think about. The Monthly Cash Flow Plan really lays it out there.

You may have noticed the little percentage box. This percentage is the total percent that this category should make up of your budget. This is important because many of us don’t realize how much of our budget is spent in certain categories. I sure was surprised that I was spending more money on food than I was on my housing!

I would also like to point out that during the Financial Peace University, Dave Ramsey pointed out that the two most important categories to pay first were your charitable giving/tithes to the church and your personal savings. Believe me when I say that these two make everything else make sense in your budgeting!

Step Three

Once you have the somewhat daunting task of step 2 out of the way, your next task will be to fill in the blanks here on step 3.

If you have a zero balance, that will feel great! But there are certainly no guarantees here. In fact, the first time my spouse and I filled ours out, we were over budget by over $1000! I was shocked and perplexed. How could we be spending more than we made?

Trust me, it is possible. Not a great thing, but it is a possibility. We had serious work to do on this.

Step Four

Even though step four is the final step on the form, it is by no means the final step for your budgeting. You are going to be doing this monthly. Trust me, though, it gets easier each month and you will start to notice patterns in your spending and be able to better budget and plan for the coming month.

In step four you will be entering the actual amounts that you spend on the category each month. Don’t be surprised if those numbers fluctuate from your budgeted amount, at least at first. As you begin to see those patterns in your spending, you will also get better at budgeting closer to what you really spend.

Step four looks like this:Why doing a budget this way makes sense

If you are not accustomed to budgeting, this may be a very good way for you to make sure you are taking everything into account when you plan a budget. Budgeting like this makes sense because we need a clear and accurate look at our spending, our income and ways we can save if we are in over our heads!

Thank you for visiting my site. I would love to hear your thoughts on this post. Please leave questions or comments below and I will get back to you very soon!

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About the author

Karin Nauber, is a professional journalist who has worked in the newspaper business for the past 27 years. She is also a grandmother who, along with her spouse, is raising one of their granddaughters. Karin has seven grandchildren with whom she enjoys spending as much time as possible. Karin also was diagnosed with type 2 diabetes about 11 years ago and has faced many challenges with the disease. If you would like to contact her, please do so at:

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