Building a Budget – The Building Blocks of a Good Budget
As you build your budget, you need to pay careful attention to how it’s constructed. Watch this video to learn how to organize and right-size your expenses to make sure everything fits the foundation you set.
Once you have the foundation of your budget set with income, it’s time to start building your household budget.
The building blocks of your budget are all the expenses you need to include
It is important to count all your expenses, even smaller ones, so you can build the most stable budget possible.
There are three basic types of expense building blocks.
Fixed expenses create the first level of your budget.
These are the big priority expenses that have a set cost every month.
<ON-SCREEN TEXT IN BULLETS: rent or mortgage payments, car payments, property taxes, insurance, student loan payments>
That makes it easier to build your budget around them because they’re consistent and stable.
The next level sets all your flexible expenses.
These are also key building blocks because they cover necessities
<ON-SCREEN TEXT IN BULLETS: groceries, gas/oil/fuel bills, electric bills, clothing, childcare, savings)
But the size of each isn’t always consistent.
Your grocery bill may be small for one month, but the next month it can be bigger
This can make flexible expenses tricky to stack effectively in your budget.
It is important to measure them carefully, so everything fits properly on your foundation.
The last building blocks to add are discretionary expenses.
These are the nice-to-haves… the wants in your budget, as opposed to your needs
<ON SCREEN-TEXT IN BULLETS: recreation, entertainment, hobbies, subscriptions, vacations>
Think of these as the decorative blocks in your budget.
They make your financial house nice to live in, but they’re not necessary for its construction.
You could remove these blocks and your house would still stand.
In fact, removing them could make your house more stable if disaster strikes or you’re on shaky financial ground.
How you get all these blocks to fit together is up to you.
But the key is to make sure that all the blocks you stack up will stand on the foundation you have.