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
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:
– Phone bill
Of course, you probably also spend money on other things, so your budget should also include additional categories such as:
– Eating Out
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:
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:
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?
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.
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
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
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!