The Build-a-Budget Book

This workbook-formerly known as the Fudge-It Budget Book-offers six steps toward managing your family's money.
The Build-a-Budget Book - Articles


A budget or spending plan takes six steps for managing your family’s money. It will help your family get the things it wants and cut down unplanned spending.

Step 1. Set Goals (Needs and Wishes)

Decide what your family’s biggest money needs are right now. For example, it may be balancing income and spending, paying off an overdue bill, or having money for big expenses that come once or twice yearly. Solving some of these money needs should be your family’s goal for the month. Write the goals down. One goal that must guide your family is that spending will not be more than income. Some families start planning by setting a goal of saving a few dollars in the first month ( download Step 1 form) . Use an automatic savings method such as direct deposit from each paycheck to save money for family goals.

In future months, your family should set goals for using money for the whole year. You may want to plan for some big purchase, as well as plan for additional savings.

Saving part of your income is very important to provide for future needs and wishes. A simple, effective idea is called “Pay Yourself First.” It is setting aside money, savings, before using any of your income for expenses. Make savings a regular part of your budget; it is a “Must Spend". Think of “Pay Yourself First” as a bill you owe to the family to reach goals.

Step 2. List Income

Now look at how much money your family has to work with this month. Your family gets money one or more ways—jobs, child support, public assistance, social security, and food stamps. Add up all the money your family takes home to find your “Monthly Take-Home Income” ( download Step 2 form ).

Step 3. Select Must-Spend Items

There are also some big expenses that your family has to pay only once or twice a year—taxes, water, loans, insurance, school clothes, holiday expenses, birthday, and others. To get ready for these expenses, list all periodic or occasional items and their amounts in the months they come due (see Step 1 form)  and fill out the "periodic expenses pages ). Add each month’s expenses. Then add all these expenses for the year and divide by 12. The answer is the amount your family must set aside every month to get ready for those big expenses (see "family goals" page on form 1). Now, when these expenses come up, you will be ready for them and not have to decide which bills to leave unpaid. If a large expense comes up early in your plan, you may not have set aside enough to meet it. This does not mean the plan can’t work, only that you didn’t have enough time to prepare for this particular expense. If you’re lucky, the big expenses are still far enough away to allow you to save up for them. In any case, by sticking to the plan, you will be able to handle all the expenses on your list after a year.

Divide Total Periodic Expenses by 12 months. This amount is the Monthly $ Amount to Set Aside. Write the answer—”Monthly Amount to Set Aside”—under “Must Spend This Month” ( download Step 3 form ).

In addition, there are some monthly or regular expenses your family can’t change now. These could be housing rent or mortgage payment, child care, prescription medication, and monthly installment payments such as car payments. Write these under “Must Spend This Month” on the Step 3 form.

You may be eligible for food stamps, but the money you get from these sources will not meet all your nutritional needs. Some factors that determine the amount of money spent for food are family size, special health needs, food likes, and ages of household members. Whether or not you are eligible for these programs, you will have “Must Spend This Month” expenses for basic nutritional needs.

If your family has overdue bills, write an amount you can pay under “Must Spend This Month.” To start working toward a goal, write a small amount to get you started on your goal as “Must Spend.” Add all your family’s “Must Spends” together for a “Must Spend Total” (see Step 3 form ).

Step 4. List Flexible Expenses

Now, subtract “Must Spend” from “Income Total.” The amount left, called “Income Total for Flexible Expenses,” is the amount your family has left to spend on everything else ( download Step 4 form ).

In every family’s spending plan or budget there are many flexible expenses. These are products and services on which your family can spend a lot or can spend less if it decides to reduce spending.

Flexible expenses may include the following costs:

  1. Food—special foods for holidays, birthdays, etc., and meals bought away from home
  2. Household expenses—utilities, paper products, cleaning products, furniture, and furnishings
  3. Transportation—gas, oil, car repairs, parking and insurance, plus bus and taxi fare
  4. Clothing—clothes, laundry, and dry cleaning
  5. Personal—cosmetics, haircuts, donations, tobacco, and alcohol
  6. Entertainment—games, sports, movies, gifts, club dues, magazines, school expenses, and vacation
  7. Medical—doctor, dentist, clinic fees, and medicines
  8. Allowances for children and adults
  9. Other—such as pet expenses

Now list what your family thinks it will spend on the “Flexible Expenses.” Any records your family has about past spending can help with the decision of the amount to plan. If there aren’t any records, think about what your family spends and guess. Add all the amounts planned to get a “Plan Total” (see Step 4 form ).

Step 5. Check Plan

Compare “Income Total for Flexible Expenses” and “Plan Total for Flexible Expenses." Check to be sure your family’s “Plan Total” is either equal to or less than “Income Total for Flexible Expenses”—good planning. If the “Plan Total” is too much, your family will need to change its plan and spend less.

Does your Income Total for Flexible Expenses equal Plan Total for Flexible Expenses?

If income and outgo are equal, your plan is in great shape. If planned flexible expenses are more than income, you will need to make changes to have income equal outgo. As a family decide where to make cuts to reduce projected spending for the various categories. Have family members be part of a “dollar watch.” Each person would have a category and would find ways to reduce spending for it. For example, within the food category are there ways to buy fewer prepared foods and to prepare more food at home for holidays and special occasions?

Here are some ways to reduce all spending and to keep within your budget:

  • Practice smart shopping. Use lists and don’t shop when you are tired or hungry.
  • Buy store or generic brands instead of national brands, especially for food staples.
  • Go on fewer shopping trips.
  • Avoid waste, especially for food, energy, transportation, and household products.
  • Adopt a do-it-yourself philosophy by increasing the number of goods and services you can make or do at home and buying fewer conveniences and services.
  • Find it for free.
  • Get information. There are many sources of information to help you make better choices in the marketplace.

First, look at “Periodic Expenses” ( in Form 1 ) for items such as birthdays, holiday expenses, and similar big expenses where you may be able to cut back spending. Taxes, sewer charges, loans, and insurance premiums are expenses you probably cannot reduce now.

There are a lot of ways to save money and spend less. Check to see if advertised brand names cost more than other brands. When they do, buy the cheaper product. Buy specials. Buy in quantity if the product is cheaper and can be stored. Do more of your own work rather than paying for services like repairs, haircuts, sewing, and preparing food. You can shop in different stores that have better prices, for example, discount stores. Give each family member an allowance and stick to it so they can learn to manage it themselves. Make use of free or inexpensive recreation like family hikes and picnics. Turn the thermostat down in the winter to save on heating costs. Prepare snacks instead of buying them. Repair clothing or shop at thrift stores rather than buying new. Stop buying things your family really doesn’t need or have to have.

By planning together, your family can choose the ways it wants to spend and cut down. Your family must make the hard choices between where to spend and where to cut down spending, or not spend at all. Your family must keep at cutting spending until the “Plan Total” is not higher than the “Income Total for Flexible Expenses."

Now try your family’s plan. The whole family needs to work together to try spending only what is planned. A plan is useless unless it is put into action.

Step 6. Keep Records

At the bottom of the “Spending Record” ( download Step 6 form ), write the amount your family planned to spend for each flexible expense. During the month, check your spending with the plan. If your family is spending more than the planned amount, cut back and try cost-cutting ideas. Now your family has managed its money for the first month.

If you’ve never followed your spending before, you may be in for some surprises. You probably guessed too low for some things and too high for others. You probably forgot about still other expenses. In the next months, use what your family has learned about planning and spending and repeat the same steps. Each month’s plan will change as your family learns where it can save and where it must plan to spend more, and you will be reaching the goals of having the goods and services your family really needs and wants.

Prepared by Marilyn Furry, associate professor of financial education and literacy programs, and Judith Ikenberry, former program assistant. Special thanks to the publication reviewers: Denise Continenza, extension educator, Penn State Extension in Lehigh County; Robin L. Kuleck, extension educator, Penn State Extension in Elk County; Janice E. Stoudnour, extension educator, Penn State Extension in Bedford County; Robert J. Thee, extension educator, Penn State Extension in Chester County. They made significant recommendations for the revision of this publication.