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3 Things You Need to Include in Every Budget

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So you want to start (or revamp) your budget?!? Great! Even if you already have a budget, it’s important to occasionally review and update it.

Think about what you did right (and what you did wrong) in your budget. Did you overspend? Underspend? Did you save enough? Do you have new goals?

If you’re ready to create or update your budget, you’ll need to do a little homework to figure out what you should include in your budget. Don’t worry! It’s not complicated. In fact, if you’ve been tracking your spending, you may be halfway there.

How to include your income, expenses, and goals

A budget typically contains your income and expenses.

Your income is everything that you earn. Include the money you receive in your paycheck, as well as things like your tax refund, bonus, and even gifts received throughout the year.

Your expenses include the bills that you pay and everything that you buy. Expenses are everything from your rent or mortgage payment, the fuel you put in your car, and even the coffee that you treat yourself to on the way to work. Typical expense categories include:

  • housing (mortgage or rent payment, taxes, and homeowner/rental insurance)
  • utilities (cable, phone, electricity, gas/propane, water, garbage collection)
  • transportation (auto loans, public transportation fees, parking, insurance, and fuel)
  • food (groceries and dining out)
  • clothing
  • debt payments (student loans, credit card debt, and personal loans)
  • charitable donations
  • medical/healthcare
  • savings and insurance (disability and life insurance)
  • entertainment/recreation

You should also include your financial goals in your budget. Do you want to pay off debt? Save for a house? Go on a vacation? Include these in your budget!

How to Find Your Income, Expenses, and Goals

The easiest way to find out how much you make, spend, and save is to look at your bank statements.

Especially if your paychecks are automatically deposited, you’ll have no problems identifying your income. If your income comes from various sources or you don’t have direct deposit, you may need to do a little more homework.

If you use a credit card for most of your transactions, you can use the statement as a starting point to track your expenses. Many credit card statements categorize your transactions for you, like listing all purchases at Kroger as “groceries.” The statement may categorize some purchases as “general merchandise,” so you may need to do some tweaking, but you should have a good start to tracking your expenses.

If you use the cash envelope system, you’ll need to track your spending by manually reviewing your purchases. Save your receipts and look over each one. Don’t forget to check them for hidden expenses, like picking up magazines in the checkout line as part of your “grocery budget.”

Line by line, make sure that you’re spending your money the way that you need to (or even want to).

To find your goals, think about the overall state of your finances. Do you have a lot of high-interest debt, like credit cards or auto loans? Do you still have student loans? What about your savings? Have you started a rainy day fund? Do you have a household fund? What about your retirement funds or college savings funds for your kids? Don’t get overwhelmed thinking about your goals.

At this point, figure out the exact amount of debt (including your monthly payment, interest rate, and current payoff amount) as well as the amount of savings (including type of account, interest rate, and current balance). We’ll discuss plans for each of your goals next week, but at this point get the numbers gathered.

How to analyze your budget

Now that you have an idea about how much you make, spend, and save, start thinking about whether those numbers align with your priorities. Ask yourself the following questions:

  • Did any of the numbers surprise you? Did you notice any spending patterns (dining out in the winter, higher recreation expenses in the summer, etc.)?
  • What numbers stood out? For example, are you spending more on entertainment than you are on debt payments? Did you find yourself dining out more than you bought groceries?
  • Why did you make some of your purchases? For example, my husband, who is an engineer during the day, changed jobs two years ago. We had to buy a new wardrobe because he had to attend more meetings instead of traveling to his customers’ factories and spending time in the labs. We spent a lot more on clothing than we normally do. Also, once I had my second child, I didn’t have time to go shopping for clothes. I relied on websites like Stitch Fix to send me clothes, which cost more than what I had spent when I had time to purchase clothes off clearance racks.

If your spending and saving habits don’t align with your priorities, start thinking about what you could do differently. For more information on starting or updating your budget, check out the posts in this series:

  1. Why you need a budget
  2. What you should include in your budget
  3. How to create a budget framework
  4. Which programs and tools would be best to create your dream budget
  5. What to do when your budget doesn’t work.

Join me on a journey as we create your dream budget!


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