Budgeting Made Simple: Your Ultimate Guide to Financial Success
While we can go in a number of directions when making a budget, I’m going to give you some basic how-to instructions. Personal finance is always personal, and you may need to tweak these steps to fit your lifestyle, but this should help you get started. If you’re married, work on this together. One of you may be more into this than the other, so pick up the slack. It’s your combined finances, so you both have a role to play in making a budget.
Pick your platform
Where do you want to see this budget? On a mobile app? In Excel? On paper? Each option has pros and cons, but don’t spend too much time deciding. You can always change at any time.
List out your budget categories
Start with less and add more as needed. Here are the basics:
Income, Mortgage/Rent, Utilities, Internet, Telephone, Insurance, Transportation, Groceries/Restaurants, Medical, Childcare, Debt Payments, Savings/Investing, Housing, Subscriptions, Etc.
Pull some historical data.
How much time and energy do you have to spend on this step? Use that answer and that momentum to pull the previous month’s bank/credit card statements and start tracking to determine how much you spend on average. I recommend 3 months of history, but as I said, if you are excited and want to do more, great; if that sounds like too much work already, do 1 month and move on. What is more important is that you move on from this step and actually use your budget..don’t let this step stop you from moving forward…
Go through transactions, one month at a time, and assign each transaction to a budget category (previous step) and calculate totals for each category. Do this for 3 months of previous statements and take an average amount spent in each category. I’ll cover this in another post if you have a largely variable income.
Be realistic, but understand you may need to change your ways.
Fill in the budget amount to cover your “4 Walls,” i.e., food, utilities, housing, and transportation. No, the amount for food does not include food delivery and eating out every day; it is just your monthly grocery amount.
Next fill in any remaining monthly recurring bills - phones, subscriptions, minimum monthly debt payments, investing contributions, etc.
Notice any differences in your historical data and the new budget you created; if you need to add more categories, do so at this time or adjust any budget amounts.
Know your priorities
This is where the cuts happen…
What are your financial priorities? Not sure? With financial coaching, I will walk with you and help you set financial goals based on your lifestyle and dreams.
Based on the goal you are currently working on, this is where zero-based budgeting comes in. Take your projected income and subtract all your expenses. Take the difference and place the entire amount on whatever goal you are working towards. Extra debt payments? Building up your emergency fund? Saving for a house?
Help! My income minus the expenses is already negative! This is where the chopping block happens. Start looking at your budget categories and wants and needs. Is my mortgage payment a want or need? Need. Is my Netflix subscription a want or a need? Want. Look at those categories and expenses and separate your wants and needs. Then, go back and compare how important your current goal is next to each want and make budget cuts accordingly until your budgeted income minus your budgeted expenses equals zero.
Start tracking
Okay, your budget setup is complete! But you actually have to use it.
Start right now. Budgeting is a practice, and you do not have to wait until the start of a new month. On average, it takes about 90 days to really get the hang of budgeting and tweaking numbers.
Set up a tracking system/routine, whether you are spending 5 minutes daily pulling transactions and allocating them or 15-20 minutes per week. Don’t wait too long because you need to know how much you’ve spent during the month. It’s not a guessing game at the end of the month to see if you hit the targets or not. You will be making decisions during the month that are determined by how much you allocated to a particular category and how much you’ve already spent. Check-in with your budget and let the budget determine your purchase decisions.
Keep going and find accountability
Life happens. You may need to adjust your budget throughout the month. Spending more on groceries? Maybe cut back on your entertainment budget for the month. If you’re married, you have a built-in accountability partner. Set up spending challenges and small rewards for staying on track and meeting goals. I became a financial coach to help couples stay on track with their budgets. I’ve heard all the ways someone can justify a purchase, but I will help you focus more on your goals and see the future more clearly than the fun, shiny purchase you’re considering. Delayed gratification is important in so many areas of our lives. Money is one of them, but that doesn’t mean budgeting equals suffering. There are ways to enjoy your life, but you must sacrifice some things in order to have a better future. I would love to help you on that journey. You can reach out to me here.
