How to Do A Budget – Part 3


In Part 2 of our How to Do A Budget tutorial, we looked at a monthly budget and ran through a full month of spending.

We got to see how our spending was front-loaded toward the beginning of the month, but we also saw that we were going to be ok because our plan showed we had enough money to make it to the end of the month.

Now that the month is over, we have to do a few finishing tasks to close out our budget for the month and make sure we keep track of our money saved in our specific sinking funds.

Let’s take a look.

Closing Out the Budget for the Month

The final step to close out our budget for the month includes…

  1. totaling up our spending and saving for the month
  2. allocating our saved money to our sinking funds
  3. transferring the appropriate amount of money from our checking account to our savings account based on our final numbers.

This is going to take a bit of math, but again, it’s all just addition and subtraction, so nothing beyond our skill level.

Here’s how we’ll do it.

1. Total up the Regular Expenses

For our regular expenses, we’ll likely have some items that cost more than we budgeted and some that cost less.

If we’re watching closely during the month, we can try to make sure these balance each other out nicely, but that isn’t always the case.

To find out exactly how much more or less we spent on all of our regular expenses vs. our budgeted amount, let’s add up how much we spent on our regular expenses and see how well we did.

Regular Expenses
ItemBudgetAmount Spent
Rent$925.00$925.00
Car Payment$329.74$329.74
Auto Insurance$135.19$135.19
Childcare$457.89$457.89
Groceries$500.00$495.18
Cell Phone$82.06$82.06
Electricity$65.00$72.11
Internet$60.00$58.27
Water$30.00$33.12
Credit Card 1$100.00$100.00
Credit Card 2$50.00$50.00
Total Regular Expenses
Total$2,734.88$2,738.56

Awesome!

By subtracting the amount we spent from the total budget amount, we can see exactly how far off we were.

$2,734.88 – $2,738.56 = -$3.68

Incredible! We only missed our budget estimates by $3.68. That’s fantastic!

In the real world, getting it this close likely won’t happen very often, but as you get used to budgeting, you’ll also get better at guessing at your upcoming expenses.

Since our number is negative, that means we spent more than we budgeted. If it was positive, then that would indicate we spent less than we budgeted.

In this case, we spent $3.68 more than we budgeted for our regular expenses.

That means we have to cover that overspending by pulling $3.68 out of our Occasional Expenses budget.

2. Reduce Money From (or Add Money To) the Occasional Expenses Budget

Since we spent $3.68 more than we budgeted for, we have to reduce our total occasional expenses sinking funds by this amount.

(If we spend less than we budgeted for our regular expenses, then we get to add that money to any of our occasional expenses funds that we want. That is a nice motivation to spend less.)

So how do we reduce our occasional expenses budget by $3.68?

Let’s take a look.

Here is what our occasional expenses portion of our budget looked like at the end of the month.

Occasional Expenses
ItemBudgetAmount Spent
Auto Maintenance$50.00
Dining Out$50.00$46.41
Babysitting$25.00
Clothing$40.00
Personal Care$100.00$63.35
Entertainment$40.00$27.72
His Money$30.00$28.62
Her Money$30.00$12.15
Gifts$25.00
Travel$375.12
Total
Total$765.12$178.25

As we said before, our Travel fund was the last item on our list, so that’s the most logical fund to reduce.

The truth is that we can reduce any of the occasional expense funds that we want. We can even spread the $3.68 around and reduce the dollar amounts for a few of the funds.

Spreading that “loss” around might make more sense if we were something like $50 or $100 over budget with our regular expenses, but in our case, we’ll keep it simple and just reduce the amount we get to save in our Travel Fund by $3.68.

$375.12 – $3.68 = $371.44

Here’s what that looks like in our budget.

Occasional Expenses
ItemBudgetAmount Spent
Auto Maintenance$50.00
Dining Out$50.00$46.41
Babysitting$25.00
Clothing$40.00
Personal Care$100.00$63.35
Entertainment$40.00$27.72
His Money$30.00$28.62
Her Money$30.00$12.15
Gifts$25.00
Travel$371.44<-- New reduced number.
Total
Total$761.44$178.25

Now, to find out how much money we saved in total for all our sinking funds, we just subtract the total amount we spent on occasional expenses from the new reduced total budget amount for our occasional expenses.

$761.44 – $178.25 = $583.19

Bingo! Of our total budget of $3,500, we were able to save $583.19!

Not bad for a completely fake budget, no?

Now we are ready for the final step.

3. Transfer the Money

I’m assuming our paycheck is direct deposited into our checking account, so all our money has been coming from there as we’ve been spending throughout the month.

In that case, we should have that $583.19 just sitting in our checking account ready to move over to our savings account.

Nowadays that’s a pretty easy move. We just grab our smartphone, open our banking app, and make the transfer.

Boom! Saving money is awesome!

How To Keep Track of Those Sinking Funds

Knowing that we can move $583.19 into our savings account is awesome, but how do we keep track of how much of that money is designated for each of our occasional expense sinking funds?

It’s actually really simple.

We just keep a list of our occasional expenses along with a running total for each fund.

When we move the total amount of money saved ($583.19, in this case) at the end of each month, we update the totals for each individual sinking fund on our running totals list.

This list can be kept on paper, or in a note on your phone, or on a spreadsheet. There’s no right or wrong way as long as you know how much money you have for each fund.

Here’s what that looks like.

Occasional Expenses
ItemBudgetAmount SpentMoney Leftover
Auto Maintenance$50.00$50.00
Dining Out$50.00$46.41$3.59
Babysitting$25.00$25.00
Clothing$40.00$40.00
Personal Care$100.00$63.35$36.65
Entertainment$40.00$27.72$12.28
His Money$30.00$28.62$1.38
Her Money$30.00$12.15$17.85
Gifts$25.00$25.00
Travel$371.44$371.44
Total
Total$761.44$178.25$583.19

Then in our sinking fund list in our notebook or on our phone, we would write the specific values that are allocated to each fund like this.

Sinking Funds
ItemSinking Fund Amount
Auto Maintenance$50.00
Dining Out$3.59
Babysitting$25.00
Clothing$40.00
Personal Care$36.65
Entertainment$12.28
His Money$1.38
Her Money$17.85
Gifts$25.00
Travel$371.44
Total
Total$583.19

Now our savings account will show a balance of $583.19, and our sinking fund note reminds us that $50 of that is designated for Auto Maintenance, $3.59 is for Dining Out, $25 is for Babysitting, and so on.

Each month that we don’t spend all or a portion of our occasional expenses, we put the leftover money in our savings account and update the numbers for each individual sinking fund.

Over months and months, the amounts for these funds will grow and grow, until one day we need or want to spend some of that money.

But how do we do that?

Spending Money From the Sinking Funds?

When it’s time to go to the movies, or spend a day at the beach, or pay for some movies on Amazon Prime, we can look at our budget and see how much we have set aside this month for Entertainment.

We can also look at our Sinking Funds Note and see how much money we have in our savings account specifically allocated for Entertainment.

Let’s say we have $40 budgeted for entertainment this month, and our Sinking Funds note shows that we have $12.28 allocated for entertainment in our savings account.

Sinking Funds
ItemSinking Fund Amount
Auto Maintenance$50.00
Dining Out$3.59
Babysitting$25.00
Clothing$40.00
Personal Care$36.65
Entertainment$12.28
His Money$1.38
Her Money$17.85
Gifts$25.00
Travel$371.44
Total
Total$583.19

Our friends call us up and they want to see that awesome new movie that just came out. The one with the planes and the car chases and the guns and all the things exploding. You know the one.1

And they want to see it in IMAX.

The IMAX movie ticket plus popcorn and a drink are going to cost $47.23.

We only have $40 budgeted for entertainment this month, but we can use some of that $12.28 in our entertainment sinking fund to cover the rest.

Obviously we don’t know exactly how much everything will cost until we buy it, but once we go to the movie and have a great night out, we look at the expenses and realize it was $47.23.

That’s $7.23 over our $40 budget for entertainment this month.

No problem. We just transfer $7.23 over from our savings account to our checking account.

But we’re not done there. We have to make sure our Sinking Funds note is updated with the new lower amount allocated for Entertainment.

We have to go into our Sinking Funds note and reduce the amount designated for entertainment by $7.23.

Remember, we had $12.28 in our entertainment sinking fund before the movie.

$12.28 – $7.23 = $5.05

This one event cost us our whole $40 entertainment budget for the month, and reduced our entertainment sinking fund down to just $5.05.

Good thing the movie was amazing and we had a blast with our friends.

Sinking Funds
ItemSinking Fund AmountNotes
Auto Maintenance$50.00
Dining Out$3.59
Babysitting$25.00
Clothing$40.00
Personal Care$36.65
Entertainment$5.05<-- Updated amount after subtracting $7.23 for the movie.
His Money$1.38
Her Money$17.85
Gifts$25.00
Travel$371.44
Total
Total$575.96<-- Total amount in our savings account is reduced too.

Reducing our entertainment sinking fund amount will also reduce our overall savings amount by $7.23.

The new total for everything should still match the total in our savings account because we transferred the $7.23 out of our savings account and into our checking account.

The total of all our sinking funds should always equal the total of our savings account at the end of each month.

Rinse and Repeat

Once the month is over, and we’ve transferred any saved money from our checking account to our savings account, and updated our Sinking Funds note, it’s time to create a new budget for the next month.

Yes, a brand new budget.

I know, many of the things will be the same, so we will certainly start from what we just used, but we really need to think about the month ahead.

If we have 2 birthdays in the next month, we should probably check our Gifts fund and see if we need to allocate more there and less somewhere else.

Maybe it’s time for an oil change on our car. Do we have enough money allocated for that?

No two months are exactly the same, so doing a new budget every single month is critical.

And really, we shouldn’t wait until one month is over to think about the next month.

We should actually be creating our next month’s budget about midway through the current month.

Thinking ahead will really help us as we truly start planning how we spend our money not just today, but really putting those sinking funds in place for spending that will come up 6 months from now or even 1 or 2 years from now.

How to Do a Budget: Conclusion

The first time you do a budget, it may take you an hour or two just to set it up.

Getting the numbers to add up and making sure everything is working the way you want will be a pain.

I’ll just be honest, as a guy who’s not a math nerd and generally hates numbers, it’s probably going to suck. 2

But here’s the thing, you’re going to get better at it. You’re going to get faster at it. You’re going to figure out how to make it work for you.

When we started budgeting over 10 years ago, it took us a couple hours each month to calculate everything and close out the budget at the end of the month.

Today, we probably spend 30 minutes a month on the budget.

What we do today isn’t very different than what we started so many years ago. The difference is that it has become routine. We are used to it.

And if you stick with it, you’ll get used to it too, and it will become a natural part of your routine.

Because here’s the other thing – nobody is going to care about your money more than you.

If you want to pay off those student loans faster than anyone thinks possible, you’re going to have to make that happen.

If you want to save up money for a 3 week vacation, you’re going to have to make that happen.

If you want to be able to buy that next car with cash, you’re the only one who can make that happen.

You are the secret ingredient in your financial success.

A spreadsheet or an app might come alongside and help you, but if you expect any of those tools to do the work for you, your bucket of unmet expectations is going to be overflowing.

Are you ready to step up and take control of your finances? Are you ready to become the financial leader you need to be? For your family? For your kids?

Excellent.

I’ve Got a Gift Just For You

To help you take the next step and get started taking control of your money, I’ve got a special gift just for you.

Two special gifts actually.

The first one is my custom Live Your Wage Budget Spreadsheet, based on the budget spreadsheet my wife and I have used for the past 10 years.

This spreadsheet includes all the concepts I’ve taught in this tutorial and is ready to use right away.

And, of course, if you use my spreadsheet, I’m here to help you. After you download it you can contact me and I’ll walk you through how to set it up so you can use it month after month.

My second gift to you is my 5 Budget Apps That Will Change Your Life blog post.

This post includes 5 powerful budget apps that have helped millions of people start taking control of their money. Not all of these tools are right for everyone, but one of them might just be the perfect budgeting solution for you.

Some of the tools cost money, and that may not be something you’re interested in right now. That’s why I’m giving away my Live Your Wage Budget Spreadsheet completely free.

And, of course, leave me a comment below and let me know what you thought of this tutorial.

Your incredible financial journey starts now.


  1. Little Women, I’m guessing.
  2. Unless you are a math nerd, in which case it will suck less!

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