Back to the Basics: Budgeting 101
episode
DIY Money | Personal Finance, Budgeting, Debt, Savings, Investing
16 min
2 speakers
4 chapters
transcribed 1 month ago
Transcript
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Transcript generated automatically by AI and may contain errors.
What is the main topic discussed in this episode?
Hey, this is Daniel. Thanks for listening to DIY Money. If you haven't already, be sure to give us a five-star review on iTunes so your friends know that they can learn from the show. Now, enjoy the show.
Welcome back, ladies and gentlemen. You're listening to another edition of DIY Money.
DIY Money.
Hey, Howard, we're three times in a row.
Third time's the charm.
So I'm not going to ask you about your New Year's resolutions. I'm not going to ask you about any of that. And the last episode went 29 minutes. So let's just go right into it. Keeping it short. But do send us the questions. We're rolling into the new year. Merry New Year! We'd love more questions. Podcast at DIYMoney.org. We'll send you a $25 Amazon gift card if we use it on the show. DIY Money Junior questions always, always are bumped to the top. We're in a Back to Basics series. Episode number one was tracking spending, which is the first level of foundation of building a budget, which everybody says you need if you want to improve your financial situation, which I agree with. However, most people never talk about how to actually build a budget.
It starts by tracking the money you're spending. So now that you've been tracking expenses in any form that fits your personality, you could be using the Spiral Notebook. You could be using the Excel sheet. You could be using Quick Inter QuickBooks. I have no idea. I use Google Sheets to this day, probably 15 years later. I don't know. What you're going to do, however... is once you're well into the month, I would say within the first couple of weeks, you need to start creating two additional areas within each expense. So, for instance, if you're thinking about a spreadsheet, this would be two additional columns to the right of what you have already tracked. So as a recap, what you're tracking is the date you're spending, how you've spent it, what it's being spent on, and the amount.
So for example, on January the 2nd, I used my debit card. I went to Speedway. I put $56 into my car. The next column... would be the category that you are going to start to use to lump your expenses. So, for example, in the Speedway example, I would say that is auto fuel or gasoline. But I also have natural gas at my house, so I use auto fuel. I don't have a generic category. lumped in category like transportation or car, but maybe you do. Maybe you are so disciplined that you know every month you need an oil change divided by three, right? Because maybe every three months you need an oil change and it costs you $100 and so you're lumping in $33. I have no idea. That's a little extra for me. I put oil changes in miscellaneous, but that's beside the point.
How dare you? The point being is that you need to create the category. So fast forward, you've been tracking your expenses.
How do I start tracking my spending as the first step to budgeting?
You've done the first few columns, date, how you spent it, debit, checking, whether you wrote a check or paid cash or put it on that Visa or American Express, whatever it is. where it was spent, and the amount, to the right, you are going to start to create categories. Categories for me, after an evolutionary process, by the way, that sometimes changes over time, which I'll talk about that in a second, include such things as groceries, utilities, auto fuel, entertainment, miscellaneous goods, housing, education, etc., etc. Why I say they change over time is because when we had three kids in diapers, we had a diaper category. I now have a youth sports category. They will change over time. The next column, and this is very important in the creation of your budget, is a fixed or variable column.
For example, if you pay rent or have a mortgage, those are going to be the same every month. They are going to be fixed expenses. Anything that is the same or consistent every month is put into a fixed bucket. Everything else is put into a variable bucket, and it's just labeled as such. You could just, again, go through and write to the right, W-R-I-T to the R-I-G-H-T, every single expense and just simply write fixed or variable. Now, why are you doing this?
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