There are a lot of ways to design your budget and the vast majority of them result in you micromanaging your money by trying to categorize every little thing your money gets spent on. Some people even encourage you to go back through 1 year of bank statements. It’s no wonder most people don’t do budgets and those who do think it’s so hard. Here’s a tip: shred every bank statement you have. The money is gone, forget about it. The past doesn’t matter because you’re going to change how you spend your money.

There are exactly two categories your bills fall under: fixed and variable. The fixed expenses are the expenses that will get you angry phone calls, a ding on your credit, etc if you don’t pay them on time every month. A variable expense is everything else.

You may be thinking that your electric bill is variable because the amount changes but that’s not the definition I go by. The electric bill is a fixed expense because you must pay it every month. You can’t do without electricity. Just because a bill is fixed doesn’t mean you can’t do things to reduce the cost.

One of the gray areas is the required bills that are only paid once or a few times per year such as insurance premiums and your car registration. You can either consider those variable expenses and not budget for them or you can consider them fixed expenses and figure out the amount per month you need to save for them. I consider them variable expenses because money that doesn’t go out of my possession during the current month goes into a big pool in a high yield savings account. I’m aware of the bill but I don’t worry about it on a monthly basis. You may want to create a separate savings account for bills that are not paid monthly and put the monthly amount under your fixed expenses. It just depends on how good you are at not spending your savings and how much per month you put into savings. In my case the amount I put into savings per month is more than the amount of any non-monthly bill. So in the worst case scenario I make a smaller deposit into savings a month or few out of the year.

The other gray area is credit cards. The first step is to stop using them. If you need them then you’re spending outside of your means and you need to fix that. Either way, stop using them. Now see what the minimum payment is for each of them and add the amounts to your fixed expenses. This ensures that your credit cards are being paid each month if they have a balance.

The second step is to determine what you’re going to do about them. If you have a low interest rate on them it may be better to just leave any extra amount off the budget and increase the amount that goes into savings. Then pay off the credit card in full when you have enough in savings. The other option is to figure out how much extra you can put on them and get them paid off as quickly as possible. Your goal should be to pay your credit cards off within one year and no more than two years.

So the first step to creating your budget is figuring out what all your fixed expenses are and when they are due. Put them in order by date.

The next step is figuring out when you get paid and how much.

And finally figure out how much money is left each pay period after the bills for that period are paid.

If you don’t have enough money in a pay period to cover the bills in the same period try to adjust when the bills are due.

For example I get paid on the 1st and the 15th. So any bill from the 1st to the 14th is paid for with the first pay check. I like to pay extra on the mortgage and the mortgage is due on the 5th so it’s paid with the first pay check. However if I include the extra amount I’m not left with much money so I moved the extra payment to the 15th. So now I have an extra $100 to work with from the 1st to the 14th. The sum of the fixed expenses from the 15th to the end of the month is about half of what I get paid so the second half of the month is when money is moved into savings.

So for example I’m left with $200 from my first paycheck and $800 from my second paycheck after all the fixed expenses are taken out.

I now have $1000 to use for variable expenses. $500 of that goes into savings so now I’m left with $500 for food, gas, etc.

For most people gas is not a huge expense since they live close to where they work. For those of us who commute long distances to work it is a noticable expense. Either way figure out how far you travel to and from work. In my case the round trip is about 100 miles. Now multiply that by 5. So in a week I travel about 500 miles. Weekends we tend to travel 100 miles as well so on an average week we travel about 600 miles. At 24 miles per gallon that works out to 25 gallons of gas per week. At $2.00 per gallon that’s about $50 a week in gas. So I figure about $250 is needed for gas every month.

So the amount left for food and everything else is $250. And to make sure everything fits within that amount you have to find ways to avoid spending money. If you want to go see a movie then fine, go see a movie but remember you only have $250 that has to last for the moth.

The only trick to making a budget is making sure the things you must pay for are covered. The rest of it is just avoiding spending money and putting away most of the money in savings to keep it out of your reach.

You savings is something you dip into when you want to make a large purchase (more than you have available in your extra monthly spending money) and have considered whether or not it’s worth dipping into your savings for. It’s also there for when you run out of spending money and have to buy food or gas. It is entirely possible that even after doing everything possible to save money you find that you can’t really afford to put as much as you did into savings. If you put $500 in and find you needed an extra $50 for gas then put $450 in next month and try again. Or see if you spent money you didn’t need to then put $550 in savings next month to make up for the withdrawl.

The whole point of not micromanaging your money is changing your attitude from “I need to see a movie every month, I need new clothes every month, etc so I have to budget for movies and clothes” to “I have $X to spend and I’m going to spend as little as possible and only on the things I need.” If I friend is in town and you want to take them to see a movie then do it. If you need a new pair of pants then get them.

A budget should include normal monthly expenses. Don’t budget for things you don’t need because you shouldn’t make a habit of buying things you don’t need. You don’t need to budget for seeing movies or going out to eat. When you want to do it just ask yourself “is this worth dipping into savings for?” and learn to say “no” a lot more.

Recently the government announced that they are out of money for the Digital Converter Box coupon program. Well, it’s not that they’re out of money it’s that they havn’t decided yet to allocate some more money from the billions they got from private companies when they sold off the soon to be available bandwidth. Unless of course Obama gets his way and they delay the transition yet again. Now that somebody has paid billions of dollars for something they will get after the transition I think it’s pretty unlikely to be delayed much if at all.

Although I have cable I decided to request a coupon last month and use some extra money I’ve earned to get a converter box. I’m currently paying for cable through the HOA at a cost of $8 a month which I’m sure won’t last forever. I have a TV that isn’t digital and a TV tuner on my PC that isn’t digital. So I figured that for $10 I’d give it a whirl.

When I picked up my converter today I realized why they aren’t just free with a coupon: because the state gets the tax on the full value of the converter. The converter I bought cost $50 and tax is 8.8% so I paid $4.40 in tax and THEN the $40 was taken off. I was taxed 8.8% on $50 not $10. So the state gets a cut of this deal as well. The reason that the government is just having private companies build these things is because it’s creating a new market which is a good thing in this economy. Companies can then charge a reasonable amount over the value of the coupon and make a profit without pissing off consumers (too much). That box is not worth $50-60 but it is worth $10-20.

A day or two ago Slashdot had a discussion going on this coupon shortage story and somebody posted a sob story about a poor friend who couldn’t afford the $10-15 for a converter box. Maybe it’s not absurd that there exist some people who seriously can’t find $20 in their budget in any reasonable amount of time (less than 6 months) to shift from some other non-essential to a converter box so they can continue watching TV which they claim is so important to them and I was tempted to feel sorry for such a person until I plugged my brand new antenna into my TV. An antenna which happened to cost $13.

So let’s pretend I’m so strapped for cash I can’t afford a digital converter box and all I have is a cheap pair of rabbit ears. The channels, I mean, *channel* that comes in is channel 8. PBS.

In the posted sob story this friend couldn’t afford $10-15 for a digital converter box and expected the government to bail him out in some way so he could watch TV.

Meanwhile I’m forced to pay $8 a month for cable or all I get is a very fuzzy version of PBS. Should the government mandate that over the air channels be accessible for free everywhere in the US? Of course not. Whether you can’t afford a $10 converter box or can’t afford $45 a month for unsubsidized cable, or can’t afford a rooftop antenna it’s all your responsibility to find the money or do without broadcast/cable TV.

It’s not up to the government to make sure every home in America can get TV stations. It’s up to people to adjust their financial priorities so they can afford to have it if they want. If that means doing without something else for a few months so you can get the converter box or a better antenna then that’s what you have to do.

People need to stop whining and do what needs to be done. Some people should feel lucky that it’s only going to cost them a one time expense of $10-25 to get a converter box. For many people they have to subscribe to cable and pay a monthy fee indefinitely or they get nothing.

In my case if cable stops being subsidized heavily by the HOA it’s going to go and when that time comes I’ll either have to fork over money for a better antenna or just do without broadcast TV. Sometimes the problem isn’t financial, it’s location.

The other reason I don’t feel sorry for the guy who wanted it but “couldn’t afford it” is because I couldn’t afford it either and yet I got it. I find ways to make extra money so all the money from my day job goes to things we need and the extra money is used for toys. It doens’t matter how much or how little you make, sometimes you need to be resourceful and find ways to earn extra money if you want something.