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

How do I set a budget and is it really that important?

Setting a budget. Sounds like a daunting task, right? It doesn’t have to be.

Most of us have a tendency to make the budgeting process much harder than it has to be. We look at the “negative” things that we assume will happen if we have to live on a budget.

But living on a budget can actually be a blessing in disguise because we can see exactly what we can spend in any given budget area. If you look at a budget as a planning tool instead of something that will restrict your ability to spend, you can see the value of it.

There are many ways to set up a budget. In this post, we will look at the method I use. In future posts, we will look at other budgeting methods

Creating a budget from scratch

This is the method I have used for years. Most of the time it works very well.

When I say I create a budget from “scratch” that is exactly what I mean. I don’t use fancy charts and graphs. Most of the time I don’t even use a spreadsheet. I just use a pen and a piece of notebook paper. (Yes, they still make notebook paper.)

I make two columns on the paper. One column has all of my expenses. The other has all of my sources of income. Since I am married, I also include my spouse’s income.

The reason I like to do my budgeting this way is because I know what items I need in a budget. I know when they are due and can put all of that on the paper and can easily change it without opening a program on my computer to do it.

The “bad” part of doing a budget this way is that sometimes you can forget to include an item which is an “occasional” payment. This can really throw everything off!

So what type of items do I put on the expense list? Let’s take a look.

Expense side of the budget

As the title suggests, on this side of the budget sheet you simply write down all of your expenses for the month.

What I found useful in determining what my average monthly expenses are was to take out my checkbook and calculate all my expenses for a certain item. For example: electric. I took a three-month average and then wrote it down and added $20 to it so that I wouldn’t under budget for the item

Here are the exact items I have on my expense side. Yours may be different, but this gives you a general idea.

  • House payment
  • Water and Sewer
  • Electirc
  • Garbage
  • Credit Cards
  • Dining Out
  • Savings
  • Car Payment
  • Car Insurance
  • House Insurance
  • Health Insurance
  • Medications
  • Doctor Visitis
  • Dentist
  • Taxes
  • Fuel Oil
  • School Tuition
  • Food
  • Gas for Cars
  • Cable TV
  • Internet
  • Tithing
  • Miscellaneous

Miscellaneous is kind of like my “cheat” area where I put any “left over” money that can be spent on “miscellaneous” items like birthday presents, Christmas presents, a new outfit or whatever. There isn’t always a lot of money left over, sometimes there isn’t any, but I try to always include $100 USD in the miscellaneous items category.

Okay. So once all of those are figured out, I then assign dollar amounts to all of them. The reason I do this before I figure out my income is because I can always go back and change the amounts I spend. I can’t usually change the amount I earn (unless I get a part-time job).

The next step is figuring out my income.

Income side of the budget

My monthly income does vary from time to time simply because I get paid every week. Some months have five weeks, some only four. My spouse is paid every other week and some months gets paid three times, but most of the time it is twice a month.

I want to note here that I have a small part-time job maintaining a website that I only make $25 a month doing. I also have a small writing gig that pays me $50 a month. I do not include these in my income figures. I simply cash the checks and put them in a small interest bearing account. This brings in just a bit more than I get from stuffing my mattress with it, but it is safer. Once I have enough, I can put the money into a CD that will earn more interest.

Once I have all of the counted income sources written down I come up with my total.

My income side of the budget looks like this:

  • My income
  • My spouse’s income

Next comes the really “fun” part—making sure I have enough income to cover the expenses.

Income versus expenses

When I say “fun” I hope you realized that was said in jest. Sometimes the fight between expenses and income can seem insurmountable.

There have been some months when the expenses simply outweighed the income. That is when a reserve or rainy day fund comes in handy.

Since I plan my budget on the high side, adding in at least $20 more on each item than what I figure the average monthly cost is, I usually have a couple of hundred dollars worth of “wiggle room.” I also figure our incomes lower by about $200 each month. That gives us anywhere from $300 to $500 in money that we can work with if things get really tight.

I have rewritten an entire month’s budget many times when the “wiggle room” just wasn’t there.

When I go through my bills, I figure out if there is any way I can pay less on something. Many of the monthly expenses are set—like our house payment—so there are not a lot of areas of leeway, but leaving that bit of room in the budget does help when things get tough.

We always seem to have enough at the end of the month, so I think so far our budget has been working and we don’t feel we have to deprive ourselves—at least not too much!

Balancing the budget

Setting a balanced budget is not impossible, but it can be a challenge. If you find yourself in over your heads, setting a balanced budget can be the difference between having enough and going bankrupt!

It really is a balancing act which takes discipline and follow through. You have to be willing to work at setting your budget and you have to be ready to fail at meeting your budget until you are able to figure out the details.

There is no time like the present to start saving and earning for tomorrow!

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:


  1. It’s really challenging to set up a budget when there’s not enough income. I experienced it for myself, really hard. But you’re right, I must really create a budget no matter how hard it is. For without it, it is equally hard to track down expenses and where the money is going. Unless someone sits down and make a budget, I think it would be near to impossible to get ahead financially. If you are a guy like me, it would be easier if you can get the help of your spouse, as men tend to be lazy setting up these things. My opinion is, women are more skilled in this kind of thing.

    • If you set up a budget you will be able to see where you are spending money and be able to figure out better ways to manage your money. I have found that when there isn’t enough money it’s because I am overspending. Granted, things in life cost more than what our salaries can often afford us. Unfortunately, that is when we have to make cuts in our spending. I’ve had to go without cable TV, etc. at times until I can afford them. Without a budget, I would be lost.

      Best wishes,
      Karin 😁

  2. It is so important to set a budget every month, because you will know if you have any “left over” money that can be put towards debt or maybe into savings. I think the hardest part of creating a budget is just starting it. Your budgeting idea is great since it is simple and easy. Thanks for giving us a starting point for budgeting. Great article!

    • You are welcome. When we overcomplicate things, like a budget, I think it makes them harder to do. Keeping it simple can help a whole lot in this situation, as well as many others in life!

      Best wishes,
      Karin 😁

  3. Hi Karin! Yes, a budget initially may sound as a daunting thing. But I have seen from first hand experience how useful it can be. I appreciate you have explained to us in this post how to create a budget from “scratch”. And you haven’t omitted details: a notebook, two columns, and so on. This has made your post super useful to me! 

    • A budget is a very important part of life, without one, we can forget what we have to pay and when. forgetting a payment can be a huge burden when money is short. It can also be helpful in planning. I have another post on budgeting that I think you might find helpful, too. You can find it at:

      Best wishes,
      Karin 😁

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