At first, it may be painful to do this. However, once you develop a monthly budget, it’s extremely
easy to track and analyze.
The principle behind having a monthly budget is simple: each month, more money must come in than
goes out. There is no alternative; you can’t spend more than you make. I know this is contrary to how
our government and most Americans manage their finances. However, if you adhere to the budgeting
process explained (and shown) over the next few pages, you will become financially secure over
The simple act of developing, tracking, and analyzing your monthly budget will result in sound
fiscal management. So, let’s break the process into these three parts:
1. Develop a budget—List all your expenses and all your income, and account for them in
2. Track your budget—The first day of every month, summarize your performance against
last month’s budget, and prepare this month’s budget. Once you have done this a couple
of times, it will take you next to no time at all to manage.
3. Analyze your budget—Look at your budget and see where you are doing well and
where you’re not. Make the necessary changes that allow you to save more money.
In order to understand budgeting better, let’s look at the first step, developing a budget.
To develop a budget, you need to estimate (1) what is going in your pocket (income) and (2) what is
coming out of your pocket (expenses) every month.
Let’s look at what is going in your pocket:
1. Salary—Look at the after-tax dollars in your paycheck.
2. Bonus and commissions—If you are eligible to receive this, it will have to be an
estimate (in after-tax dollars). I usually don’t include it and end up saving the
3. Dividends and interest—Estimate this based on your prior year’s investment history.
4. Gifts—You usually receive these only on birthdays and holidays (and they go away as
you get older).
Now, let’s estimate what is coming out of your pocket. Major expense categories include the
1. Housing—Mortgage or rent is usually your biggest expense. However, you can’t forget
property tax, insurance, and estimated maintenance/repairs. Renting will usually
eliminate some of those expenses.
2. Utilities—It’s amazing how many “support services” are needed to run your house.
Electric, gas, water, garbage, cable, Internet, and phone services are the major utility
3. Automobile—Until you can purchase your car with cash, your major automobile
expense will be your car payment. However, you will also need to include insurance,
gas, parking, maintenance, and repairs. If you’re smart, you will also start a fund that
enables you to purchase your next car with cash.
4. Food—The two major expense categories here are groceries and restaurants.
5. Entertainment—My example includes movies, sports, clubs, vacations, electronics,
and cell phone service. This works for the individual in my example, but you definitely
need to personalize this area for yourself (depending on your personal entertainment
6. Miscellaneous—Here, I lump together any items I didn’t account for in other categories.
Include expenses like gifts, supplies, and toiletries, but personalize this category based
on your own habits.
7. Other insurance—This is where you need to account for health and life insurance
payments. I used this category as a catchall for health care expenses, so I include
physicians, dentists, optometrists, prescriptions, and any other health care-related
expenses I have.
8. Other loans—In addition to loans included in other categories (home and car), you may
have student loans or credit card debt. Include both of these in this category.
9. Charity—It’s nice to have this one broken out. It makes you think about giving not only
money but also time to various charities.
10. Savings—You need to have this in your budget, even if it’s $0 when you first start out.
This is one of the main reasons you are budgeting: to find a way to save money every
11. 401K fund—If a 401K is available with your employer, this is another forced savings
method you need to use. We will discuss this in a later lesson (see principle 58).
12. Emergency fund—Do you have money in case of an emergency? You need to. We’ll
also discuss this in a later lesson.
Now let’s look at an example of a budget that takes into account all the categories we just outlined.
Shane Furlong December 2017 Budget
* Include gifts, fees, toiletries & all other supplies
** Include insurance and any other health costs for physicians, dentists, optometrists and prescriptions
Note that the budget you just looked at is a balanced projected budget. What is coming in equals what
is going out. This is mandatory for any personal budget you are developing.
Of course, depending on your lifestyle, you may add, delete, or change expense categories.
Importantly, develop categories that make sense to you.
The only thing that matters is developing a budget that works for you. “Working for you” means that
you can track and analyze it. Which brings us to the next step: tracking and analyzing your budget.
To track your budget properly, you must be able to track your income and expenses. Income tracking
is easy; use your paycheck and investment statements.
Expenses are also fairly easy to track. You just need to be aware of them and develop a system to
track them. The system I use relies on using the following items:
1. Check register/debit card receipts.
2. Credit card receipts—I have only one card and I pay it off every month; we’ll discuss
this in a later lesson.
3. Cash receipts—While these are more difficult to keep, make sure you do so. As you get
more experienced, it will get easier to track these. Now (after over twenty-five years of
budgeting), I track cash expenditures as miscellaneous spending.
I set up files for each expense category. As the month goes by, I put the receipts in their proper file.
At the end of the month, I total them up and fill in the actual numbers in my monthly budget.
Let’s look at the example to see how the projected and actual numbers reconcile.
Shane Furlong December 2017 Budget
*Includes gifts, fees, toiletries, and all other supplies.
**Includes insurance and any other health costs for physicians, dentists, optometrists, and prescriptions
While many of your expenses will stay constant over a year (e.g., rent and car payment), many
expenses will vary monthly (e.g., entertainment, food, and utilities).
In the preceding example, the actual income was greater than the projection ($4,822 versus $4,400)
due to an increased commission. This allowed Shane Furlong to save a lot more ($600 versus $250)
and to put a bit more into the emergency fund ($167 versus $100).
In this manner, you can quickly analyze your budget. Where did you spend too much? Where didn’t
you need to spend as much? What else do you need to include next month? How do you set yourself
up to save more in the future? What are your financial goals for next month and for the next twelve
I hope you see that the monthly budgeting process isn’t complex. In fact, after you do it two or three
times, the process will take you less than one hour to complete.
I promise that if you adhere to this process, not only will you optimally manage your finances but you
will also feel better about your financial position.