You Need A Budget

Seriously, you need a budget.

Have you ever been in this situation: You just got your paycheck, your bank account has been refilled with a lot of money; life is good. But the next week, or two weeks after, you find yourself sitting at your place trying to figure out where all your money gone. Your account is almost empty and you’re trying to balance the checks and, thanks God, payday is tomorrow. Or another example which is very suitable for this time of the year. Tax season, you’re calculating your taxes and here’s the same question: ‘We’ve earned so much! Where all the money’s gone?

family budget

We were in those shoes; first year in the States we lived from paycheck to paycheck* , second year we asked ourselves exactly the same question – “We’ve earned so much! Where all the money’s gone?“. It scares and puts pressure on you, a lot!

But here is a solution for this mess and it’s called BUDGET.

For a lot of people the word Budget it’s a curse. It is something that people don’t say aloud or even if they say they feel ashamed. When people hear “Budget”, they hear something like, You can’t spend money on this or that” instead of, “Hey, you’ve got a budget! And you CAN spend money on this, or that”.

What is a budget?

how to budgetBudget is a tool that helps you understand where your money SHOULD go, instead of wondering where it’s gone. It’s like a map or navigation in your financial journey, if you like. Without proper navigation you have a huge chance to get lost quickly.

Hey, Stan, can you be more specific?

Sure, let me show you the conceptual or mental rationale of how we budget. We pretend we virtually spend every dollar we’ve earned since the last month, or we think we’re going to earn this month. And we do it before the month begins. This is so called Zero Based Budget, i.e. you income minus your expenses has to be ZERO.

Before I show you a practical example let me mention there are actually two concepts of budgeting.

  • Concept 1: Use previous month money for the next month budget.

This is the concept we use for budgeting. We use all the money we earned, say, in November to build December budget. It’s more difficult at the beginning because you have to save more money to start. But it’s less risky because if you get laid off in the middle of a month, you have the current month already covered.

  • Concept 2: Use the money you think you’re going to earn to build the next month’s budget.

According to this concept in November you have to make a guess or a prognosis about the money you are going to earn in December to make a budget for December. It’s more risky, but easier at the beginning especially if you don’t have any savings that can cover your monthly expenses.


I am going to show you how to use Concept 1. Let’s pretend I took home $3,500 in November and my beautiful wife took $2,450.


Mr. Friendly Russian – $3,500
Mrs. Friendly Russian – $2,450

Basic spending

Before you start planning anything else I’d strongly recommend to cover the basic necessities so called the four walls:

Food – $450
Mortgage/Rent $1,100
Utilities (Gas, Water, Garbage, etc) – $120
Transportation (Fuel, Car payment**) – $400

After we covered these four wall of our life we have $5,950 – $2070 = $3,880 yet to spend. The next thing I would spend the money on is SAVING. You have to save if you want to win financially, and you have to do it every month:


Roth IRA – $916
Kids Education – $400
Taxable Investment – $300

Your ultimate goal is to save as much as possible. The more you save, the better and faster your results will be.

Other spending

Car maintenance – $100
Car Insurance – $80
Clothing – $60
Medical – $75
Cellphone/Internet – $50
Kids Daycare/Afterschool – $350
Term Life Insurance – $90
Entertainment – $150

After doing a little bit of math you can find a surplus of $13o9 that you can still spend. What would you do with this money? Spend or Invest? But before you answer this question you have to remember that saving $50 every month for 10 year can become about $9000. From the other hand, you have to remember, that your family is worth to investing as well. Don’t forget about flowers for your wife, family evenings or vacations.

It takes no more than five minutes for us to create a monthly budget. ‘Hey, hey… What do you mean by MONTHLY budget?‘ Oops, I forgot to mentioned that there is a catch – YOU HAVE TO DO IT EVERY MONTH. Otherwise you will find yourself at the beginning, sitting and wandering about where all the money gone.

* Before the States we had been making great money, I mean GREAT, and we hadn’t worried about it. We used to think that budget is for people who don’t make a lot of money

** Please, PLEASE, don’t make the mistake we maid a while ago. Don’t take a car loan. The best car you can have is your paid off car. Later I will write a post about it.

***If you have any consumer debt, I would highly suggest to pay it off using either the debt snowball or the debt avalanche method. Later on I will write about our own experience

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2 Responses to You Need A Budget

  1. I definitely agree that having a budget is incredibly smart. Even if you think you know where your money is going most people under estimate certain categories. I was talking to some friends and they had $600 of miscellaneous expenses that they had no idea about. That to me is mind boggling and the perfect reason to have a budget 🙂
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