Budgets. Those things we should have learned about in high school, but didn’t. Those mysterious creatures that we hear about getting “cut” in the government or at work. They seem a little bit like diets – restrictive, boring, and yet somehow necessary for achieving our goals (or even just living). “You need to get on a budget” sounds like “you need to get on a diet,” right?
If you’ve tried to do a budget but never succeeded, you’re not alone. And if you’ve thought “I need to get on a budget” but you don’t know where to start, you’re in good company. But even though budgets may or may not be exciting and fun, they can help you DO things that ARE exciting and fun. And they don’t have to be hard. In this post, I’m going to teach you how to make a budget – and actually use it to reach your goals.
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What is a budget?
A budget is just a plan for your money. As Dave Ramsey says, “A budget is telling your money where to go instead of wondering where it went.” And contrary to popular belief, a budget doesn’t have to be restrictive. That depends on you and your situation, because you are in charge of your money. Rachel Cruze says that a budget gives you permission to spend. You made a plan up front that worked with your (or your family’s) goals, and now you’re just carrying out what you planned.
In this post I’m going to teach you how to create the only kind of budget I recommend – a zero-based budget (what Ramsey calls an “everydollar” budget). You don’t need to remember this word. Just remember this: Every dollar has an assignment; you’ve made a plan – to give, save, or spend – every dollar that will come in.
If you are married, you and your spouse should agree on your budget. Usually it works best for one partner to create the budget and then both spouses meet to review and make any necessary adjustments. If you are not married, your finances shouldn’t be combined with anyone elses’ – not your fiance, your roommate, or your boyfriend or girlfriend. Legally, you’ll have no protections if something happens to the other person (whereas married couples will). My sister and I are roommates, so we each do our separate budgets, even though we both contribute to certain household expenses.
How Often Should I Make A Budget?
You should make a budget every month, before the month begins. It should be a new budget every month; you can copy over your recurring expenses, but since no two months are identical, you’ll need to refresh your plan each month.
If you’re going through a major life transition, such as getting married or divorced, moving to a new home, changing jobs, preparing to go on leave or go be home with the kids, etc., it’s a good idea to do a “mock budget” based on your estimated expenses once the change takes place. This will help you get ahead of any adjustments or decisions that need to be made.
Do I need to wait for the beginning of the month to start budgeting?
No! Start today. You’ll just have to make sure you account for the money you have already spent this month, but you should start exercising that budgeting muscle as soon as possible. (Even if you’re a few days away from a new month, creating a budget for the current month will give you a good starting place for the next one.)
How to Make a Budget for Beginners:
1. Choose a budgeting tool.
There are many, many budgeting tools out there. Don’t get stuck here. Just pick something and start. If you don’t like it, try something different next month. You have a few options:
I personally use and recommend the Everydollar app. I’ve been using it since 2017 and it’s just become a part of my rhythm of life. Upsides to using an app: 1) it can sync with your bank accounts, 2) it does the math for you, and 3) it’s easier to move things around when you need to make changes, rather than rewriting everything. Most of us carry our phones everywhere, so you’ll always have your budget with you, even if you leave other items at home. I use the web brower app when I’m putting together my budget or reviewing transactions, but I’ll use the mobile app when I’m on the go.
Option 2: Make a Budget Spreadsheet
This is what my parents do for their budget, and it’s what I’ve done for budgets for my businesses. Upsides: Spreadsheets aren’t ever going away, and with some work on the front end, you can make them do most of the things an app will do. Downsides: you still have to set up your spreadsheet (one of these days I’ll make a template to share!), and you can’t directly sync with your bank account.
Option 3: Use a Budgeting Planner or Journal
Some of us prefer an analog tool, and I completely understand (I’m a paper planner user myself…just not for my money!). My sister loves her Clever Fox Budget Book.
Option 4: Use Good Ole Paper and Pencil
You don’t ACTUALLY need a fancy tool. Just start. (Of course, you’ll have to do your own math!)
I love the Everydollar app, and I think it’s especially great for beginners to learn the process. But at the end of the day, the best budgeting tool is the one you use.
2. List all of your income sources.
In your tool of choice, you’ll want to list out all of your sources of income for the month, and how much you expect to bring in (take home pay) from each. If your income fluctuates and you don’t know, make an estimate based on past experience. When payday comes, you can adjust your budget to reflect the actual number.
I tend to estimate low and not high when I need to estimate income; I don’t want to overspend expecting money to come in, and then have it not show up and I have to rework the whole plan. If I guess low, I’ll be safe with a good plan and I’ll have fewer changes to make later.
3. List your giving
List different categories of giving that you normally do, and how much you plan to give to each. *Note: If you’re paying off non-mortgage debt, tithe will probably be your only giving for now. Calculate your tithe (10% of your income) and enter it here.
4. List what you will put to savings, various spending categories, and debt payoff.
Here are some categories to get you started, but you can create your own (to your desired level of granularity!) and delete those that don’t apply to you. Just list the categories for now; we’ll fill them in with amounts in a minute.
- Emergency fund
- (You can include other savings goals here, but if you have non-mortgage debt your emergency fund is probably the only savings category you need right now).
- Rent or mortgage payment
- Car registration and maintenance
- Or depending on where you live, this might be parking, bus or train fare, etc.
- Fun money
- Personal Care
- Home supplies (some will include this in groceries)
- Renters or homeowners insurance
- ID Theft protection
- Car insurance
- Health insurance (leave this off if it comes out of your paycheck)
- Life Insurance
- List each individual debt here with the minimum payment.
5. Fill In your planned amounts:
Start with the “4 walls”: Food, housing/utilities, transportation, clothing. And start with what you “need;” you can beef it up later.
Enter the minimum payments for your debts.
Now enter planned amounts for other categories.
As you’re entering your planned amounts, keep in mind your current goals.
Take a look at the 7 Baby Steps to help set your goals. If you’re working on your $1000 Starter Emergency Fund, you’ll want to plan to save a good chunk of that this month. If you’re working on your debt snowball, you’ll want to put extra money towards your smallest debt.
6. Balance your budget:
When you’re all done, your income minus your planned giving, saving, and spending should equal zero. (In the Everydollar app, when you get there it will say “It’s an Everydollar Budget!” in green at the top). If it doesn’t, you’ll need to adjust your spending until it comes out to zero. This is the part that can get really painful if you haven’t been paying attention to your money. Work through it; get creative with cutting expenses or bringing in extra income to make the budget balance and also make it work for your goals.
Does this mean I will have zero in my bank account?
No! But this question is totally understandable. The zero means that you have planned for every dollar to have a purpose; you’ve left nothing to “accident.” But it is a good idea to keep a buffer in your checking account: a small amount that you pretend isn’t there, in case there is a surprise (something you forgot about comes up on autopay!). If you’ve been running your bank account on empty, add a line to this very first budget called “Buffer” and plan for a certain amount ($50 or $100 is usually good to start) to set aside and keep in your account. Next month, you’ll remove that line from your budget, and you’ll just pretent that $100 isn’t there.
7. Use Your Budget
Enter your transactions (I like to do this once a week as part of my “admin routine”) to make sure that you’re tracking towards the amounts you’ve set aside for each category or item. Do NOT wait until the end of the month to enter your transactions. You will find that you spent more than you planned, and by then it will be too late to course correct.
If you’re using the Everydollar app, it can be helpful to check the app when you’re out and about before spending money in some categories, and even enter your transactions on the fly.
At the end of the month, make sure to finish tracking everything and make a new budget for next month.
Give yourself grace.
It takes most people 90 days to get into a good rhythm, and when you first start, you’ll find all these expenses you forgot about. Just don’t quit!
Use the Buddy System
If you’re married, you and your spouse should agree on any changes to the budget. If you are single, have an accountability partner that you’ll talk to before any significant changes.
Now it’s time to make a budget!
Go create your first budget. If you get stuck, I’m here to help: you can schedule a coaching session here (your first session is free! 🙂 ).