How to Create the Best Budget in the Military

in Plan by Lacey Langford, AFC®

A budget is a plan for how you’ll manage your money by tracking the dollars you earn and spend. Rule number one in making a budget is…do what works for you. Trying to use your BFF’s method of a spiral notebook with a bunch of colored tabs may not be the way to go for you. Especially if you find it complicated and confusing. A budget is pointless if you don’t use it. It’s best to try a couple of methods to find the one you’ll use and stick with.

Here’s are 6 steps to create the best budget when you’re in the military.

  1. Set Goals
  2. Pick Your Method
  3. Start with Income
  4. List Your Expenses
  5. Include Irregular Expenses
  6. Settle the Surplus Cash

Set Goals

First things first, you need to think about your money goals. Knowing what you want out of your money will make creating a plan easier. Are you trying to reduce debt or save for a house? Do you want to spend less on going out to eat and more on lumberjack lessons (hey, it’s your money)? Write your goals at the top of your budget because an unwritten goal without a timeframe is just a dream. When you write down your goals and make a plan, it helps them become a reality.

Pick Your Method

Most information you’re going to put in a budget is basic, what’s different is how you keep and track that info. Here are some methods you can use: I recommend a pencil and paper or a spreadsheet to start with. Once you have that method down, you can take it up a notch when you’re ready.

Start with Income

Now it’s time to make your budget. The two basic parts you’ll need are the money you’re bringing in and the money you have going out—your income and your expenses. At the top of your paper, under the goals, you wrote down (because you took what I said earlier to heart), write and underline “Income.” Under this heading list your monthly income, if you’re lucky enough to have multiple incomes, write them all down. Some examples are base pay, BAH, BAS, alimony, child support, a pension, social security, or unemployment. After that, write down the total all of your income.

List Your Expenses

Next, write down and underline “Expenses” right underneath all your income. This is where you need to remember all your monthly expenses, and I mean all of your expenses. If you need to sit down criss-cross applesauce in a sea of paperwork to sift through all your bills and paperwork, then do it. The first item you want to list is savingsalways pay yourself first. It‘s important to remember all the expenses you pay each month. Here are some to jog your memory: car payment, rent, electricity, car and medical insurance, lunch money, gasoline, and food. The last two I mentioned are variable expenses—this means they can be higher or lower each month. If you have no idea what you spend on those each month, take a look at your bank statements. These statements are helpful to look at your past spending to plan how you’ll manage your future spending. To put your food spending in perspective, check out the USDA’s Cost of Food Reports. They update the average food costs each month. It’s helpful to look at these numbers compared to what you think you’re spending or are spending on food.

Don’t Forget the Irregular Expenses

A big mistake in making a budget is not accounting for items that don’t happen every month. Forgetting to add these expenses to your monthly budget can have a devastating effect if you’re living paycheck to paycheck. Most people don’t have their oil changed every month, or need new tires every month, but they’re still expenses that need to be in your budget. This goes for birthdays, holidays, satellite radio or Amazon Prime too. Take each irregular expense and divide it by 12 to know how much to include in your monthly budget.

Example: if your car registration is $75 per year, divide $75/12 equals $6.25. Now you put $6.25 in a savings account, and by the time the bill is due, ta-da, you’ll have the money in your account.

Settle the Surplus Cash

Once you’ve listed your income and expenses, it’s time to see if you’re living on less than you make (that’s the goal) or you’re spending more than you make (that’s not good). Take the total all your income and all your expenses then subtract your expenses from your income—this is the free cash you have each month or your cash surplus. After you determine this number, you may want to go back and adjust some items for your budget. If you have excess money, then you may want to increase your savings or payments on debt to get your surplus cash closer to zero but still a positive number. If you’re overspending, go back and reduce your expenses to create extra money. This may mean no entertainment money or a reduction in your grocery spending, but remember it’s not forever—it’s just until your budget gets under control. And folks that’s how you create the best budget in the military. Don’t put off making a budget because you’re stressing about making it perfect. In the beginning, it’ll be a work in progress. The first month, you may find you’ve spent too much on groceries or that you aren’t spending as much on entertainment. No worries. Improvements will come as you tweak your budget each month. The most important point of all this is to not only SAY you’re going to make and follow a budget but actually to DO it!