How to Create a Budget

How to Create a Budget

Do you think starting a budget is hard? Do you procrastinate instead of making a budget? Have you ever ran from a room to avoid having a conversation about budgeting?

If so, you have come to the right place because this is not just any blog post – this is the ultimate blog post about how to create a budget. You know it is ultimate because we put a picture of Chuck Norris right here. And Chuck Norris doesn’t mess around.

That means it is time to get serious, cast aside your procrastination and fear, and conquer budgeting once and for all! This blog post will tell you exactly how to start your budget and how to succeed with it. It will help you devise a budget that works for YOU, based on what is going on in your life and the specific goals you’re working toward.

If you’re wondering who I am and what experience I have with budgeting, check out this blog post about how I myself started budgeting. Below, I’ll share my best tips and guide you through the process so you too can become a master at budgeting. Here’s what we’ll cover:

1. What is a budget?
2. How to start your budget
3. Do you need budgeting software?
4. Making sure you SUCCEED at budgeting
5. The psychology behind a budget
6. How to budget if you have DEBT

Sounds good? Okay, let’s get started…

What Is a Budget?

A budget is your plan for how much you will spend each month (or week) and on what. That’s it. Pretty simple, right? The tricky part is making sure your budget is accurate and that it’s working for you. That’s what we’ll focus on now.

How to Create Your Budget

Starting a budget

“This ain’t so bad!”

Here are the 3 steps to create your budget:

1. Write down a list of your spending categories. These should include the basic things like:

– Housing
– Transportation
– Groceries
– Entertainment
– Phone bill

Of course, you probably also spend money on other things, so your budget should also include additional categories such as:

– Travel
– Clothes
– Eating Out
– Gym

Just remember, it is supposed to reflect your life and it needs to accurately represent the things you spend money on. If you’re not sure of all the things you spend money on, don’t worry – there will be time to figure it out.

This next sentence might make you want to run away, so try to stay strong: For the next month you will need to track your spending and keep a tally of each category. But you know what? It’s not as hard as you think!

All it requires is that you take a few minutes each day (and at the end of the month) to write down what you spent. From now on, simply keep your receipts and add the amounts to your budget at the end of the day.

We even have a free budgeting spreadsheet you can use.

As an example, to help you understand this process, I’ll show you my own budget snapshot (using this spreadsheet) from the blog post I mentioned above. First, I wrote down my expected spending categories for the month:

February Budget Goal

Then, throughout the month I tracked my spending every day in the budget spreadsheet and at the end of the month I opened it up and added it all up to see how I did:

February Budget

As you can see, I exceeded my budget by $29 that month. But that’s okay! What’s important is not that you’re perfect but that you are in charge. That’s why creating a budget is powerful.

“Living frugally is not being cheap; far from it, frugality frees you to save for what you want and enjoy it guilt-free.” –John, FrugalRules

Do You Need Budgeting Software?

Budget tips

No software needed

The short answer is: “No.” However, budgeting software can sometimes help. For example, many people like using the You Need a Budget tool. There are also quite a few budgeting apps that you could use on your mobile devices if you wish.

You can also try the envelope budgeting system, which is explained in this blog post. The envelope budgeting system uses envelopes full of cash that are assigned to each category in order to keep you from spending more than you budgeted.

However, for now, what really matters is that you’re budgeting and keeping track of your spending. Our budgeting spreadsheet is good enough to do the trick unless you really want something fancier.

“The world we live in makes it extremely difficult to win with money, and if you choose to follow everybody else you’re assured to end up broke.” —WorkSaveLive

How to Succeed at Budgeting

Once you’ve gotten the hang of tracking your spending, then what you need to do is reduce your spending down to a level that allows you to accomplish your goals.

It’s possible you’re already at that level. If so, congratulations! However, most of us need to work at it to reduce our spending to where it should be. For me, I realized that in order to pay off my debt I needed to save money – so I stopped getting lunch at restaurants and started making lunch at home. I used other small changes like that to help get out of debt faster.

So first, identify your goal. Is it paying off debt? Buying a house? Putting your kids through college? Or maybe it’s just having an emergency fund to give you peace of mind. Whatever it is, use that to determine how much you need to reduce your spending. And if you’re married or in a long-term relationship, get your finances in order as a couple so you can pursue goals together.

Then, check out our Budgeting Tips Resource Center to learn new ways of saving money. And also use the ideas in these blog posts:

1. Reduce food costs
2. Reduce the cost of owning a car
3. Reduce entertainment costs
4. Reduce clothing/shopping expenses

As time goes on, you’ll continue to track your spending and notice how those amounts in each category are changing. You can then re-adjust your budget to reflect the new spending levels if you want.

Of course, it can be hard to change our behaviors. That’s why it’s important to understand how your mind works in order to shift into new ways of thinking and acting.

“The next time you are out shopping and you are about to buy something, stop and think – ‘Do I actually need this? Or is it something that I just want?'” –Glen, MonsterPiggyBank

The Psychology of a Budget

Psychology of budgeting

Use your brainpower for good!

Humans are complicated. We have trouble prioritizing long-term goals (like retirement savings) over short-term goals (like going to the mall). That is the psychological reason why budgeting is so important – and also why it feels so hard sometimes.

In order to overcome it, think of your budget as your spending plan. It’s your goal to stick to your spending plan each month, and if you do, you win.. You can even reward yourself when you stick to the plan. There are many ways to reward yourself in a responsible way – you could get an ice cream cone, watch your favorite TV show, or put a gold star on the refrigerator. Whatever helps to motivate you is perfect!

By using this motivation and staying focused, you will be successful in reaching your goal.

“I clawed my way back out of the large hole, penny by penny, and after 4 long years, I have paid off my last credit card.”  –Grayson Bell, DebtRoundUp

How to Create a Budget if You Have Debt

Budget to pay off debt

Your budget can help you pay off debt

What about those of you who have debt? You might be wondering if that changes how you should budget. And the truth is, it can change your budget.

This is especially true if you have large monthly payments on your debt. If that’s the case, it will be even more important for you to find ways to save money. We recommend that you use ReadyForZero to manage your debt and start paying it off. In your budget spreadsheet, you’ll need to have a category for each debt that you have – credit cards, student loans, mortgage, etc. – and you will need to budget an amount above the minimum payments so that you can start paying those balances down! (Also, sign up for our Zero Debt Action Plan)

Hopefully this blog post has shown you exactly how to create a budget. We think you’re now ready to go out and kick some butt as you start your new budgeting life. Just think of Chuck Norris and be inspired!

And if you have any questions, feel free to ask us in the comments below. You should also bookmark this page and subscribe to our blog so you can continue receiving our tips on saving money and getting out of debt. We’re going to go deeper into some of these topics in the coming weeks and months, so don’t miss it!

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  • John S @ Frugal Rules

    Great idea for a post & thanks so much for the inclusion! So, does it make me sick if I love to budget?! 😉

    • Thanks, John! Haha, I’m not sure if it makes you sick so much as unusual – but actually, in a big way you’re fortunate to enjoy it!

  • Wow, Ben! This was a fantastic post and I really appreciate the inclusion of a quote from my site. That is really awesome and this will be a fantastic resource. This is definitely going on the Weekly Top 12 this week!

    • Thanks, Grayson! I’m glad you like it. And your quote was great so I was glad to include it. Can’t wait to see the Top 12 this week!

  • Thanks for quoting me. I don’t think I have ever been quoted before. It felt pretty cool 😀

    • It was a great quote, Glen! Glad that we could feature your first-ever quote!

  • BuckleDownFinance

    Awesome tips on creating a budget Ben.

  • Jemjem

    This whole site gives me hope.. and thank you for such for awesomes tips!

    • Wow, thanks very much for the nice comment! We’re always excited to hear that the site is helping people — it’s what motivates us to keep making the site as good as it can possibly be. Please continue to give us feedback (good or bad) and we’ll continue to try to make the site better!

  • Haddiyyah

    I believe that the post is very relevant in this era
    where people have the tendency to spend too much money on almost anything and
    actually have a lot of trouble saving. These tips will most probably prove to
    be very useful, I personally love the idea of rewards when sticking to the spending
    plan in order to forget the feeling of deprivation that may very well occur.

    • Thanks! I’m glad you enjoyed the article. Rewards are definitely a good way to keep yourself motivated.

  • Great tips! I think planning for vacations is so important, and I love the way you set it as a rollover category in your budget!

  • I think as long as it works for you, and you know where your money is going, its fine. Nothing says it has to be monthly.