Step 1: Review

Set aside 1-2 h to look back at your household operating costs. Most bank cards and credit cards have the option to look back at automatically categorized spending in their apps. There are fixed expenses and utilities that are hard to change. Your variable expenses are the best candidates for reduction in spending in order to improve your profit margin.

Step 2: Set a goal

Yes, just one. When you begin keeping a strict budget for the first time (or the first time in a long time), setting a single goal can help keep you motivated. I would recommend a short-term goal that can be achieved in 1-3 pay cycles. An example of a goal we had during a 3-month budget cycle was to pay off my husband remaining car loan. Reflecting on the car loan balance declining motivated us to be more mindful of our discretionary spending. You can add goals as you cycle through the budget flow, but urge you, start with just one. (Freebie: Use this budget communication worksheet to help you and your household get on the same page.)

Step 3: Build/Adjust

Using the information from Step 1 (Review), set your goal spending limits. Decide the percentage of your revenue that you would like to see in your profit margin. Decide if unspent monies will go to savings or be used as a “member perk”. For example, if you underspend by $20 in your grocery allowance, will you save that money and spend one-on-one time with your child at the playground or take your kid to the local donut shop for a treat they don’t need but would really enjoy? There is no wrong choice if you are satisfied with your profit margin. (Freebie: use this template to get started)

Step 4: Track

There are a variety of ways to track your spending. You can use pencil/paper, excel, or a fancy app! Here are 3:

MINT: this app can link to your credit and debit cards to automatically categorize your spending and track your savings rate.

Personal Capital: This app can link EVERYTHING (your credit/debit card, educational loans, 401K, mortgage, etc.) and calculate your net worth. You can get alerts if you’ve overspent in any category. If you’re into aggressive debt repayment, the graphs created by this app can be very encouraging. They also offer financial planning advisors for a fee (which I have never used and can neither endorse nor discredit).

Goodbudget: If you don’t want to link your bank account to a service, this app allows you to manually enter your spending. You may find that manually entering your expenditures is cumbersome, and may have a side effect of decreasing your spending.

Step 5: Repeat

Repeat every pay cycle or interval of your choosing. When you return to Step 1: Review, you have an opportunity to measure progress. How did your household do regarding your monthly goal? What needs to change? What went to plan? As you move to step 2, this time you can add a goal. Adjust your budget from Step 3, and then track until it’s time to review again.