How To Create Your Budget

by | Jan 20, 2019 | Family Finance | 0 comments

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When you are starting homeschool, it is wise to set a budget. Even if it’s a small one.

Most homeschool families are on one income, therefore it is extremely important that we learn to budget. And budget well.

As you know, there are countless ways to set budgets, but I am not here to set you up for failure. 

I am going to show you the actual steps I take EVERY. SINGLE. MONTH that result in saving 45% of our annual income.


To figure out ANY budget, whether if it’s for homeschool, groceries or entertainment we need to know the basics.

We are going to do a little bookkeeping. Are you ready?

We are going to take a look your current financial situation.

Take out a piece of paper or open up Word or Google Docs and jot down these 3 things:

Annual Income

Annual Expense

Annual Savings


If you know your annual income (minus taxes and all), good for you! You are already good to go. Put that number right next to Annual Income.

Most of us need to do a little bit of digging and bust out that calculator.

This is what I do.

I look closely at each month’s pay stub. Take the gross income and subtract FICA Social Security and FICA Medicare, and state & federal taxes.

Any deductions that come out of my husband’s payroll (like 401K/TSP/403B, dental, medical) I do not subtract because I simply want our monthly income minus FICA and taxes.

I track pre-tax deductions like retirement savings and dental premiums under savings and expense in my spreadsheet (which I will talk about later).

I do this for each month of the year and that’s how I get our annual income.

For example:

We will use this sample pay stub below as one of our regular month’s pay stub.

Pay Stub Template
Sample pay stub courtesy of


$452.43 (income) – $81.91 (total FICA/Taxes) = $370.52 (your MONTHLY income).

$370.52 (your monthly income) X 12 (months in a year) = $4446.24 (your ANNUAL income).

Put this number next to Annual Income.

If you are paid bi-weekly, make sure you have both of the month’s pay stubs and calculate accordingly.

If your pay is different month to month, you can look at last year’s W2 to get a good estimate. You can also multiply a typical month’s income by 12 to get your annual income just to make it simple for today’s exercise.

However, the best thing is to track your income every time you get that paycheck.

My husband in pretty much on regular pay, meaning he is on a salary. He does not get paid on an hourly basis.

Even so, I still check the pay stub every time he gets paid to make sure there are no discrepancies.


Annual expense can be tracked down by keeping track of EVERYTHING that you spend money on. If there’s money going OUT, you are going to track it.

For our bookkeeping exercise today, if you already know your average annual expense go ahead and put that number right next to Annual Expense

If you don’t know your annual expense, I can show you how I track our expense below but it will take some time.

If you don’t have the time, you can also just grab a piece of paper and start listing your expenses for a typical month, try to be as realistic as possible:

For example:

  • Rent/Mortgage: $1000
  • Groceries: $300
  • General Merchandise/Household: $200
  • Internet: $60
  • Cell phone: $60
  • Utilities: $50
  • Gasoline: $100
  • Medical Insurance: $200
  • Dental Insurance: $30
  • House Maintenance (including insurance): $100
  • Car Maintenance (including insurance): $50
  • Homeschool: $50
  • Dining Out: $50
  • Entertainment: $10
  • Shopping: $70
  • Travel: $300
  • Misc.: $20

This may not be exact because you may eat out more in February than March, or maybe your car needed some maintenance last month but not this month, etc.

Tack onto this any major one time expenses that you may be aware of (annual insurance premiums, Christmas shopping, etc.). This will give us an approximate to work with today.

Ideally, we should track every month of the year.

Add up those numbers and multiply by 12 to get your Annual Expense.

$2,650 (total monthly expense from above) X 12 (months in a year) = $31,800 (Annual expense).

Jot this number next to Annual Expense.


I created this spreadsheet to track our income and expense. Please feel free grab a FREE copy of this spreadsheet by signing up below.

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    To get an accurate expense for each month I use Personal Capital.

    Personal Capital is a free online tool that allows you to plug in all your financial institutions and it will collect all the numbers and give you your net worth, that is how much money you have in total.

    Personal Capital will track your income and expense and analyze your portfolio fees among many other things.

    I’ve used Mint (a similar online tool) before but I prefer Personal Capital’s dashboard. It’s just a personal preference. You can check out both and see which one you like.

    Personal Capital Dashboard
    Image credit: Personal Capital

    I was hesitant at first because I was worried about plugging in all my financial logins online but I am not very good at tracking all our receipts so I took the plunge and signed up.

    After two years of using Personal Capital I have to say they take security very seriously and I haven’t had any issues so far (thank God).

    Again, it’s free to sign up and use.

    If your investments is above a certain amount, you will receive a call from them asking if you’d like them to walk through your portfolio and suggest ways to help you grow your investment for a fee.

    If you like what you hear, go right ahead. If not, kindly decline. Either way, you can use their free online tool.

    Every two weeks or so, I will log into Personal Capital and gather my expense numbers and plug them to the spreadsheet.

    If I pay cash for anything I try to log it into the spreadsheet right away otherwise I will forget.

    We spend money on a regular basis, putting gas in our cars, groceries, etc.

    To manage our finances well, it is crucial to know how much we are spending.

    If you want to start now, consider these steps:

    1. Either sign up for Personal Capital for free or start tracking all money going out by logging into your online bank account(s).
    2. Use a spreadsheet to plug in all your expenses.
    3. Do this AT LEAST every month. It does take practice and diligence if you are not used to tracking your expenses. But, let me tell you this. You will be SO much more in charge of your finances. I cannot stress this enough.


    Simply take your income and subtract it by your expense. Jot this number down next to Annual Savings.

    For example:

    $60,000 (annual income) – $30,000 (annual expense) = $30,000 (annual savings)

    This $30,000 will go towards any outstanding debt you may have, if not, an emergency fund, retirement, investment, or college savings, etc.

    I include debt here for a reason.

    It is because I take care of our savings goal FIRST before setting our household budget.

    If you have debt, this is going to be THE NUMBER TWO priority you are going to focus on in your “savings.” 

    Number one being an emergency fund.

    Here is a straight-to-the-point article on debt that I often refer to when friends ask me about finances. 

    How to create a budget


    Now that we have our basics figured out, we are moving on to the next step.

    Set your savings goals.

    Instead of listing out your expenses and setting budgets for each category and then put the leftovers in your savings, I suggest setting your savings goal first.

    When my husband and I first looked into our expenses we weren’t too surprised but we also thought we could do better.

    Doing better meant spending less and saving more.

    After some research and thinking, we decided that if we set our savings goal first then it will guide us to set our budget.

    How to budget by saving first

    Now, do you want to save a quarter of your annual income, or a third, or half?

    Well, the most common percentage that I see when I google “How much money should I save annually?” is somewhere between 15%-20% (assuming you start saving when you are in your 20’s).

    This is not bad advice if you are sure to work until retirement age, which for us millennials and younger this would be 67 or later.

    If you want to retire earlier than 67 or if you did not start saving at least 15-20% in your 20’s, you are going to have to bump up that savings rate.

    Generally, when we save, we are saving for rainy days and retirement. There may be other things like paying off student loan debt, credit card debt, a wedding or honeymoon, a vacation, etc.

    List out the things you want to save for, this can help guide you to think about why you are saving.

    For example:

    • Pay off debt
    • Emergency fund
    • Retirement
    • Kid’s college fund
    • A car
    • A vacation

    Ideally, we should pay off any debt we have first while keeping a small emergency fund (at least 1 month worth of expense). Then, you can build up your emergency fund (3 months worth of expense) and your retirement saving.

    You can then prioritize how bad you need a vacation or a car, research how much that specific vacation or car cost and set a percentage to save.

    If you are saving for your kid’s college, I wrote extensively about how to save for college HERE if you are interested.


    HERE is a blog post with a chart in there that may help guide you as you set your savings goal for retirement.

    We use the chart ourselves. This is to guide you in saving for retirement, which again, in general that’s one of the main reasons we save.

    We set our annual savings goal as well as our giving goal before setting our budget. It’s up to you if you want to set a giving goal at this time or not.

    Currently, our annual savings goal is at 50% and giving is at the rate of 12%. Once our giving and savings goals are set we can figure out how to live on the remaining 38%.


    Set a realistic savings goal. Let’s say, for example that we are earning an annual income of $60,000 and living in San Francisco.

    With a savings goal of 50% it would be very hard and almost unrealistic unless you have low cost living arrangements.

    The average rent for a one-bedroom in San Francisco will blow through more than half of that annual income.

    So, let’s say you decided to set a realistic goal of 20% savings rate.

    $60,000 (annual income) x 20% (savings rate) = $12,000

    This means you have to put aside $12,000 per year or $1,000 per month.

    You set your savings goal, it’s realistic and you feel comfortable with it. Good. Done. Check.


    If your annual income is $60,000 and your annual savings is $12,000, then your annual expense will be $48,000 or $4,000 a month:

    $60,000 (annual income) – $12,000 (annual savings) = $48,000 (annual expense)

    $48,000 (annual expense) / 12 (months in a year) = $4,000 (monthly expense)

    We have $4,000 a month to spend. NOW, we can budget. Finally.

    *For the sake of simplicity, we are not including taxes in our calculations but do remember that Uncle Sam wants his cut so plan accordingly.

    Hawaii vacation
    Hawaii…Take a mental break or save for that vacation.


    After setting your savings goal, you have an actual amount per month for expenses.

    So many times I’ve researched “how to budget” and found fancy budget rules, spreadsheets, or tools or apps that look attractive but the truth of the matter is this, BUDGETING IS NOT HARD.

    It’s the saving part that’s hard. It’s when you get to the part where you realize you have to cut down. It’s a tough pill to swallow.

    Think about it. Budgeting is simply taking a set amount we have each month (or year) and plugging the numbers in each budget category so they all fit.

    Homeschool budget

    But, what if they don’t all fit. Some may think well, I don’t earn enough to live.

    While I don’t know everyone’s specific situation, I do want to say this. Most of the time, it’s not about how much you earn, it’s about how much you save.

    In our society today, there is usually a cheaper grocery store and a more expensive one. Cheaper clothing stores and the more expensive ones. You get the idea.

    If we shop without a plan or if we shop at the more expensive stores when our income is not enough that’s when we get into trouble. There are so many choices when it comes to where to spend our money. Choose wisely.

    We have to learn to live within our means. If we can’t do this, no apps or fancy tool or budgeting articles and advice from finance gurus can help you.

    Living within our means is the first step in successful budgeting.

    Alright, enough preaching.

    Let’s look at your expense sheet from “Annual Expense” that we worked on above.

    Budget Spreadsheet

    Do all your current expenses fit your new budget? If so, that’s great. You can be satisfied and move on or you can see if there’s any other way to cut costs and bump up that savings goal.


    If your current expenses do not fit your new budget. You either have to trim down unnecessary things or lower your savings goal (which I do not recommend).

    Sometimes, we have to exercise our shopping skills and find ways to cut costs.

    And sometimes, we just simply have to be content with not having certain things or services. If we don’t, chances of increasing our savings goal will not likely happen.

    It’s more mental than anything. Put your mind to it and stick with it.


    Take a look at your “fixed” monthly expenses. These are usually your rent or mortgage, cell phone, internet, insurance premiums, etc. Can they be lowered?

    Have you tried researching another cell phone or internet provider? I remember when I was doing this, we ended up switching our cell phone provider (keeping the same amount of data) and saved a total of $30 a month or $360 a year.

    These little monthly expenses can add up so it may be worth it to shop around for a better deal.


    For other monthly expenses like groceries or general household merchandise, estimate how much you are already spending and see if that will fit your budget.

    For example, when I was looking into our finances I wanted to know how much we were spending on groceries each month. I logged into my bank account online and scanned my bank statements from previous months and totaled up all the grocery bills and divided it by the number of months that I was tracking (in my case, I think I tracked back about 6 months to get a good idea).

    This gave me an average of how much I was spending in the last 6 months on groceries. It was definitely higher than I like it to be. So, I knew we had to trim down on our grocery bills.

    We had to learn to make better food choices by choosing foods most nutritious to our bodies and compare the prices between the grocery stores in my town and see where I should be shopping so we can control our grocery bills.

    The next thing was to make sure I menu plan and write out a grocery list so I don’t buy anything that is not needed.

    On top of that, I use my phone’s calculator at the store. Everything that went into the cart I plugged into the calculator so I know roughly how much I will be paying by the time I get to the cash register and it helps me to stay within budget.

    Some people use coupons and are successful at it, but they don’t take coupons where I usually shop for groceries, which is Aldi’s.

    Do this with as many budget categories as you are able to.

    Remember, there are many things in your budget that can be trimmed down. Groceries, clothing, personal care, insurance, dining out, entertainment, etc. can be adjusted by shopping wisely.


    I hope you find this helpful!

    Tell me, what is ONE category that is hard for you to keep within budget? For us, it’s groceries! We like to eat, what can I say.

    Let me know in the comment section below. I’m curious!


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    Shirley Nozawa

    Shirley Nozawa

    Homeschooling mom of 2

    Hi! Welcome to my blog! I am so glad you are here. I share our homeschooling journey, family routines and finances, and random motherhood ramblings.

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