1) Contingency

Think of this as a slush fund. This line items covers life’s unexpected events and will provide you with “emergency” funds.

Don’t use this for unplanned wants (a pair of shoes goes on sale). Keep it for unplanned “real” expenses (your kid needs to sign up for an event).

The amount to put into this line item varies, start with $300 – $500 and reassess at the end of the month. After a few month’s you’ll have it figured out.

2) Track it Daily

Track how much you are spending from each line item on a daily basis. This may seem like a lot, but only takes 5 minutes a day.

Compare percentage spent from each line item vs the percentage of time gone by in the month. I.E. if you are two weeks into the month (50%) and you’ve spent $100 of a $400 line item (25%) you are under budget!

It’s difficult to make meaningful corrections to spending the last week of the month. It’s more effective to make small corrections through-out the month.

Download my budget, it tracks the amount spent from each line item and compares it against the remaining time in the month.

3) Make Adjustments

At the end of each moth increase or decrease the amount in each line item as needed.

After using a budget for ~3 months your changes will become more like tweaks. I’ve been using a budget for over 10 years and I still make small tweaks at the end of every month. Your life situations change with time and you want your budget to accurately reflect this.

Add or remove line items as needed.

4) Make It Personal

Line items should be tailored to your specific needs.

Be weary of on-line templates with pre-filled line items. They are usually to vague or too detailed. 

If needed download my budget, it allows you to create your own line items.

5) Create Multiple Savings Accounts

Create several savings accounts, one for each different need. Most of the time you can do this on-line.

Create a short term savings account. Similar to contingency but for larger and less likely expenses such as a car repairs. 

The amount needed will vary based on your circumstance. A good place to start is an amount sufficient to cover an unexpected car repair, a tow truck and a rental car.

Create a long term savings account. This is to cover a loss of employment. Start by saving 3 month’s of your household income and continue to add to it until you could live off of it for 12 months.

If you don’t have enough funds to do all of this right now don’t worry about it. Contribute whatever you can, you’ll be surprised at how quickly those little amounts add up. 

6) Annual Expenses

List out all your annual expenses. Things like Amazon Prime, Costco, Car Tabs etc.

Allocate funds for these in a separate savings account or some other source. 

7) Give it Away

Each month donate a pre-determined percentage of your income to a charity.

If you can’t afford that, volunteer a certain number of hours each week. 

This may seem counterintuitive but it helps us understand what we truly need and helps us create an abundant mindset.