My mom hates the word, “budget.” She says it reminds her of a diet – something people will try in order to get drastic results but ultimately end up reverting back to their previous eating, or spending, habits that got them into trouble in the first place.

I have no problem using the word “budget” in my household, but then again, I don’t do diets. I do lifestyle changes. And that’s basically what my mom – who shares my interest in frugal living – is getting at: that any sort of money-spending changes in a family household can’t be a short-term fix; they have to be a change in the way you live your life. For me, it’s not so much the words you use, but how you view what you’re doing.

My mom watches more television than I do and likes to share various reports on financial trends with me as well as advice from money gurus she deems worthy. One of these experts she often quotes is Suzie Orman, who we were first introduced to through the Oprah Winfrey Show and who now has her own show on public television. Neither of us worships Orman, but she is like-minded in our spending philosophies.

One of Orman’s mantras is to “live below your means.” Not at your means, and certainly not above your means, and not even within your means. No, Orman wants us to spend below what we’re bringing in.

This isn’t a diet-like change in family spending; it’s a complete change in the way family spending is handled.

For my household, where money is extremely tight – me being a stay-at-home mom and us living a 90-mile roundtrip from my husband’s main job and us having some significant expenses related to chronic health needs – I find that a budget works best.

I use a worksheet that I made on my computer, posted on the wall next to the calendar where it is very visible and easily accessible, to track all income and expenses for each month. We don’t use credit cards and rarely carry cash, so I’m basically transferring the information written in our checking account register to the budget worksheet. I update the worksheet at least once a week, when my husband or I receive a paycheck and/or we pay bills, which usually coincide on the same day. The advantage the worksheet has over the checkbook is that it breaks the information down into spending categories so I can see exactly where the money is going and if we are, in fact, spending below our means.

On the worksheet, I have an INCOME section that tracks the month’s paychecks – the date, amount, and source of each check, as well as running total throughout the month. This may not be necessary for a family whose paychecks are the same month after month, but I’m a freelance writer and so my paychecks vary in amounts and arrival dates every month, and my husband receives hourly pay at his job and sometimes those scheduled hours vary. So while we have an idea of what our income will be for the month, it does fluctuate, which can therefore affect spending allowances.

The next section on the worksheet tracks payment of what I call SET BILLS. These are the necessary bills paid every month that are usually the same, like mortgage, school, or other loan payments; utility and phone bills; contributions to our savings account; and in our case, costs to refill ongoing prescription medications and insurance co-pays for regular doctor visits. There is also a set amount to be taken out for what I refer to as our “slush fund,” a pool of money that can be stashed in a checking account or savings account to pay those bills that are necessary but are only paid once or twice a year; for example, vehicle insurance and taxes. The amount to be taken out a month is calculated by taking the sum of the total amount paid to these bills the year before and dividing the sum by 12 months. As with the INCOME section, the SET BILLS section tracks the due date, amount, and paid date of each bill, as well as shows a running balance of what’s been spent for this category.

Next on the worksheet, I have three separate sections that track GROCERIES, FUEL, and OTHER. Here is where all of our “extra” expenses are recorded, with the date, amount, and description of every transaction, each categorized as to what they are. I also do a running balance of what’s been spent for each category. For us, GROCERIES includes food purchased at the grocery store but not eating-out, as well as household products such as toilet paper. FUEL is any fill-up of a family vehicle. And OTHER includes farm expenses, medical expenses other than those accounted for in the SET BILLS section, fun activities including eating-out, cash withdrawals, and anything else that doesn’t fit in another category. It’s important to put enough description for each transaction that I can review it later to see if there are habits of spending that can be revised or cut out completely. For GROCERIES and OTHER, especially, I also keep receipts to help with this process of reviewing spending trends.

Where the budget part of the worksheet comes into play is in the GROCERIES, FUEL, and OTHER categories. The SET BILLS section lists expenses that can’t be modified or avoided, so by subtracting the SET BILLS total from the INCOME total, I have an amount that can be divided between GROCERIES, FUEL, and OTHER. To decide how to divide this leftover amount, it’s helpful to fill out worksheets for a couple months to see about how much you’re spending in each category before setting a budget. The trick is, you have to spend only the amount of money you have leftover, so if you’re consistently spending $600 for groceries a month but you find you need to trim $200 out of your monthly spending and there’s no other category to take it from, you’ll have to take it out of groceries and find a way to make it work.

To help illustrate what I mean, here is a sample monthly budget:
INCOME TOTAL = $2400
SET BILLS TOTAL = $1550
GROCERIES BUDGET = $400
FUEL BUDGET = $400
OTHER BUDGET = $50

Sometimes, emergencies do come up – for example, my car was in the shop and the cost of the repairs was well over the OTHER budget allowance – but that’s where it’s important to have a savings account. So, while it may seem like cutting out a monthly contribution to the savings account seems like an easy fix to free up extra money in monthly spending, you need that in case something big and expensive comes up.

Well, that’s enough about budgeting for now. I’ll explain more on ways I save money in later posts.