how do you make a budget?

[kindacrunchy]

My hubby works for the state of CA and will be starting furloughs next month. which means a 10% cut in pay. Now, we are ridiculous in needless spending. So, the other day I went in to Quicken and pulled up a report to see where we spend our money. Now we know where we spend our money but how do I budget it? For example we spend roughly $950 on groceries per month. I want to say I can cut that back to $800 but I don't really know if that is a high expectation or not. I really can't believe how financially irresponsible we have been. We have no problems paying our bills. We just have poor spending habits.
How do I budget?

[Ospreymaven]

If you already know where your money is going, you are most of the way there!

If you know you're spending frivolously, then you should know where you can cut back, no?

What I do is I set a budget amount and keep a running total every day of what I've spent from this budget category and what's left for the month.

[DavinaT]

I don't know if this will help but what I do it get a plain sheet of paper - doc format (or use excel if your comfortable with it) use household income as your total, subtract what I call the 'non-negotiables' (bills) - Mortgage, loans, Electricity, Petrol & diesel (gas), heating, phone = subtotal 1
Then (usually at the very start of the year but doesn't have to be) I calculate what I call yearly expenses. These are one off payments that come up every year such as - health & eye checks, house insurance, car tax, car insurance, car service, holidays, Christmas, expenses, birthdays etc. This sum I divide by 12 and have deducted every month to go into a seperate account so it is there to meet the expenses as they come up - so we have no "surprises". That leaves sub-total 2. Out of this them comes, groceries, lunches etc during the month, savings, clothes,what we call fun money for socialising etc and discretionary spending.
When it comes groceries, I meal plan per half-month / fortnight and I make a list, so we only buy what's needed, I know approximately the cost of each item as its listed also. I find this cuts down on expense and cuts down on waste as well.
In case you haven't guessed - I do the budgetting and cooking in our house
This probably sounds quite boring and old-fashioned but because my beloved is not very disciplined whren it comes to money management, it works for us.

[DavinaT]

. . . and subbing

[Sarah W]

The first step in budgeting is to have a really good idea where the money is going. You'll have your "hard" expenses (mortgage, car payment, daycare, etc) but you'll also find that money trickles away.

Take a small notebook and carry it around with you. Write down every single thing that you buy, from a soda in the machine to your grocery bills. Do that for 1-2 weeks.

Especially with food, break it down. Are you lumping in lunches that you buy at work with groceries? Are you planning your meals? Buying a lot of prepackaged or snacks? Running to the store every day or two? With a little bit (or a lot) of planning, you can make your money go a lot further.

Do you have a lot of veggies or foods with a short shelf life go bad? Planning helps you use those, too. For example, you can cook a chicken, eat it, then use leftovers for chicken pot pie the next night.

[Carson]

Since you have your expenses laid out, you would do well to sort them by dollar amount to see where you can make the largest impact. To speak to the actual hows of budgeting and cost reduction, once you know what your variable costs are, think about what is driving them and what changes could reasonably be made.

An easy one is entertainment/dining out. Are you eating out because of time crunches, or a need to 'get out' of the house. If you go out with friends, are you going to a particular place or could you GTG at someone's house for the same social connection? This is a category where you set your budget and spend within that amount.

Utility costs have a pretty direct correlation, but it's hard to know what changes you can make will impact your costs. I would probably leave this category what you are paying now as you make changes and improvements and see if you can get the costs down to a new budgeting amount.

Food is driven by what you eat (but you knew that ) Think about the food you're consuming in your household and the most costly components and see what alternatives you have. Plan your meals/menus off of low-cost items, weekly sales, more home cooked instead of prepared, etc...