August 08, 2019

Budgeting 101- how to create a simple budget

When it comes to your personal finances and your money you might have a love-hating relationship with it. You might be in the percentage that has a grip on their finances, or you might be on the other percentage that wants to do better- but can't get it together.

Whichever percentage you are in- budgeting is the #1 tool you need to get your finances in order and stay on top of them.

What Is A Budget?

A budget or a spending plan is a road map that tells your money what to do each month. This "road map" is based on a list of how much comes in and what comes out.

How Do You Benefit From A Budget? 

A budget allows you to make smarter decisions with your finances on a daily basis. It also helps you get out of debt and teaches you about your money habits.

Is Budgeting For Anyone? 

Yes, a budget has no age or discrimination. A budget was designed to help you plan your finances and get your life in order- there is no age when it comes to taking control of your life.

12 steps to creating a budget


1. Figure out the exact amount of your after-tax income (net pay)

Before you even start following the rest of the steps, the first thing you need to know is to find out how much money you make each month- the exact amount (what you take home with you) & when you get paid. Make sure you review your pay-stubs if you are not sure how much you make. DO NOT start a budget based on "estimations or assumptions" use the exact numbers. If you are self-employed or by commission- go with the previous month or lowest month (is better to underestimate your income than overestimate).

2. Review ALL of your Expenses & Spending habits

Start by reviewing your bank statements and credit card statements, identify where your money goes each month, and how much.

Before you get started, start by writing down your fixed expenses and your variable expenses ...

FIXED EXPENSES- Happens monthly, the amount does not change 
-Auto Loan
-Phone Bill
-Property Taxes
-Car Insurance
-Home Insurance
-Life Insurance/ Health Insurance
-Student Loans
-Credit Card Payments
-Child Care/Support
-Savings (rainy day, emergency fund, long term)
-Retirement Savings
-Extra debt payments
-Subscriptions (Gym, Netflix, Hulu, music)
-Other Savings

VARIABLE EXPENSES- Don't need to happen monthly, the amount changes each month
-Utilities (water, gas, electricity)
-Dining out
-Personal Care
-Pet Care

3. Do your budget BEFORE the month starts

By starting your budget ahead of time you will be able to allocate all your money before you even get it. This way once the month begins and you get paid, you already know where each penny should be going.

TIP: When it comes to variable expenses- estimate the amount by using the previous month, and even rounding it up a bit more. Once you get the actual amount once the month starts you can easily plug the correct amount in your budget and reallocate the extra money if needed.

4. Start with the most important categories first

After you have reviewed your spending habits and you are ready to start your rough draft of your budget- make sure to categorize your "needs" first. These include bills, transportation, childcare, savings, and paying down debt (if you have some). By identifying the amount on the most important categories first, you will be able to identify how much money is left after these "needs" are met.

5. Include Annual Expenses and Semi-Annual expenses

Your budget is designed to tell your money where to go- if you don't include these expenses it will leave room for overspending & surprises each month.

- Make sure to include potential expenses
- One-time expenses/events
- Occasional Spending
- Seasonal spending
- Gifts

TIP: Save for big purchases, annual expenses, and occasional spending a little at a time. By creating small savings or "sinking fund" for these occasions, you won't feel guilty when the time arrives to spend the money.

How to make a budget

6. Set a Realistic budget

The only way you will be able to follow-through with your budget is if you create a budget that matches your life and your lifestyle. Budgeting is not a "one-size-fits-all" thing and it should be adjusted and customized for each individual wants and needs. By creating a realistic budget you will be able to achieve your necessities without overspending or going into debt.

This is why is important to review your spending habits before creating the budget so you can identify what are your wants and needs based on your lifestyle.

7. Create a Miscellaneous/Buffer Category

Life happens and sometimes it does not. Is better to be prepared for things that might come up with a miscellaneous or a buffer category. This way you will not find yourself taking money from your savings or other categories.

8. Budget for Fun

Who said we can't have fun while on a budget? Just because we are on a budget does not mean we can't enjoy life. Make sure to add categories for self-care, fun, and entertainment.

Remember- these categories come after you have already accounted for the important stuff. You might have to get creative to be able to meet all of your usual fun stuff, BUT it is possible.

9.  Budget to Zero

Budgeting to zero means you are not leaving a penny without its category or purpose. The miscellaneous/buffer category is created for anything that could come up so there is no need to leave any extra money for the "what-ifs".

Leaving money without a purpose will make you believe that is "free money" which means you will want to spend it on the first thing you see. By budgeting to zero you are eliminating the possibility of spending the money just because it's there.

10. Make Adjustments

Don't be afraid to trim down your budget if things don't make sense or if you are not covering the important things. The pro of a budget is that it's your map- it will take you where you tell it to go. When creating your budget don't be afraid to move things around to make them work for you.

Start with the most important things first (bills, savings, debt)
Move on to being realistic and including fun

How to budget

11. Track Your Expenses

The only way you will be able to follow through with your monthly budget is by making sure you are tracking all of your expenses and not overspending on unnecessary things.

Ways To Track Your Expenses

  1. Excel Sheet
  2. EveryDollar App - It's free & super easy to use
  3. The Fudget App- It's free, super easy and simple to use and can also do multiple budgets at once
  4. Mint- Also free & you can connect your accounts with this app
  5. PocketGuard- Best to keep you from overspending
  6. You Need A Budget (YNAB)- Budget, Track a goal, sync accounts, and pay your debt
  7. Mvelopes- Best for cash style budget

12. Needs vs Wants 

Not everything you desire in life is a need, to be able to succeed at budgeting you need to have a clear understanding of what are your needs and what are your wants.

NEEDS- A need is something that is necessary to live

WANTS- A want is something you desire but CAN live without

TIP: Before buying something take a few minutes to consider whether you really need it or if you can continue life without it.

everything you need to know about budgeting

Often people make budgeting sound difficult or time-consuming when in reality it can all be really easy if you commit to it and follow through.

Here are some additional tips ...

  1. Create a Financial Calendar- A financial calendar will give you a snapshot of where your money will be going each month. (Use this to see when the bills, savings, and debt-paying money will leave your account).  
  2. Track Your Expenses Daily- If you're using one of the apps I mentioned above, take 5 minutes of your day each day and track your money. If you're using an excel sheet do it every Sunday or Monday.  
  3. Budget For a Rainy Day- Before you start budgeting to pay down debt make sure you are budgeting for an emergency fund of at least 1 month of your expenses. 
  4. Don't Get Discouraged- if you spend just a little here and there during your first time trying to budget- don't give up. It takes time to get used to it, just keeps going and it will pay off. 

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