Last week I showed you how to figure out where your money is going with some simple tips to track it. Today I want to help you learn how to tell your money what to do by building a budget.
Before we dive in, I want to let you in on a little secret. It’s not really about the budget or the money.
It’s about not worrying what will happen if you experience a job loss, have an emergency, or your next check doesn’t come through. Building a budget means fewer money fights and more peace in your marriage. A good budget allows you to enjoy life now while preparing for a secure future.
If this sounds exciting to you, keep reading and learn how to make budgeting work for you. I share two perspectives, one of which you’ll likely relate to. I share how I budget as the geeky, Excel loving, saver. Then my husband, Jeremiah, who rounds down by tens and doesn’t mind spending now and again shares his very best not budgety budgeting tips.
Creating a budget changed our lives!
My husband, Jer, and I have always been okay with money. We’ve never had credit card debt and started saving early. But I still felt stressed at the end of each month trying to balance it all. Then in 2011, I found myself ready to make a change.
I’d been tracking our spending which helped us cut back and freed up more of our income. But I was hesitant to start budgeting. It seemed restrictive and Jer is not a fan of accurate accounting.
More powerful than any of these fears though, was my longing for financial freedom. So I decided to give it a go. Eight years and seven months later, our monthly budget is still going strong.
It didn’t take long to realize that when you become intentional in one area of your life, you will begin to see success in other areas. As we began making progress toward financial freedom, we became healthier, built better relationships, changed careers, and became better humans.
Budgeting also brought new hobbies and interests into our lives. To save money on food, we started gardening. In lieu of dining out, we became great cooks. Looking to save money on travel we became avid campers. While searching for free activities to do together we became passionate about cycling. By cutting our TV and entertainment budget, we read more books. And by working on and achieving goals together, we became closer in our marriage.
As I said, it’s about so much more than money.
What is a Budget?
If I had to tell you how to build wealth and create financial freedom in one sentence, I’d tell you to spend less than you make. To do that, you need to know how much you’re making and how much you’re spending. The best way to accomplish that is with a budget.
The word budget is sometimes synonymous with broke, cheap, or poor quality. If you needed heart surgery, would you do a Google search for a budget heart surgeon? Probably not. So before we move on, let’s define the term budget as it pertains to this post and your life.
To put it simply, a budget helps you decide what will happen with your money before you get it. A budget helps you take your power back by making you the boss of your income. You create the plan and tell your money what you want it to do for you.
As we move up in our careers and income, it’s easy to think we don’t need a budget. Imagine if your income doubled overnight. There’s no way you’d spend that money, would you? I don’t think I would, but we all know how our lifestyle increases along with our income.
Case in point, I don’t know a single person my age who is living like they’re still in college, surviving on ramen noodles and driving a rusty old beater with windows you have to manually roll down. And that’s why whether you’re making $30,000 per year or $300,000, YOU NEED A BUDGET!
There are essentially three things you can do with money. You can spend it, save it, or give it away. A balanced budget and financial plan will allow you to do all three.
Pay Yourself First
When you start your budget, you’ll want to make sure that your basic needs are taken care of first. This includes food, water, shelter, clothing, and work-related expenses. Anything that you need to survive should be included here.
If you have money left over after these expenses are covered. The next thing you need to do is pay yourself first. Paying yourself means allocating money for your future before it gets used on your wants like fancy vacations or dining out.
Here’s the thing. People are living longer than ever. But you’re probably not going to be able to work in the same capacity that long. So how will you make ends meet when the time comes and that income isn’t coming in?
Social Security isn’t enough to make ends meet for most people. Especially if you have debt payments, which most retired people do. And I don’t need to tell you that nothing is a sure thing. The markets, inflation, and even Social Security are all unpredictable. Wouldn’t you feel better knowing you had a safety net waiting for whatever circumstances your future might bring?
Depending on where you are on your financial journey, paying yourself first could include anything from an emergency fund, retirement savings, funding an HSA, or savings for cars, vacations and remodeling projects.
I’ll cover saving in-depth in an upcoming post. So for now, when you’re creating your budget, I just want you to remember to pay yourself first.
Pay it Forward
The next section in my budget is charitable giving. Sharing your good fortune each month is a wonderful way to express gratitude for all that you’ve been blessed with. It’s not a requirement, but I think you’ll feel better when you give. If you’re new to giving, start small and ramp it up as you create more freedom in your budget.
I encourage you to not wait until you’re a millionaire or completely debt-free to start giving. You’ll feel the benefits of giving no matter how much you can donate. To learn more about the benefits of giving, check out this post.
Wants vs needs
I wrote about wants and needs in the previous post about tracking your spending. Needs are the things that are essential for your survival: food, shelter, utilities, and expenses to get you to and from work. When you’re creating your budget, be sure and cover your needs before your wants.
If there’s money left over after covering your needs, paying yourself first, and giving, it perfectly acceptable to spend money on your wants. We like to follow the rule that we only spend money on things that bring us joy.
When we decided to pay off our mortgage as quickly as possible, we cut back on all of our wants. Can you guess what we realized? We discovered that we didn’t care about most of the things we were spending money on. There are so many things we cut that haven’t been added back like ordering pizza and takeout, Sunday brunch, and fancy clothes.
The beauty of this rule is that you get to decide what that means for you. Our wants budget goes to outdoor gear and clothing. We enjoy having nice tents, sleeping bags, and even new snowshoes. For you that might mean building a beautiful home where you can entertain friends and family. You get to decide what it is that brings you joy.
Expect the Unexpected
Unexpected expenses are going to pop up each month. Maybe it’s a gift you need to buy for a last-minute party, dinner with a friend who’s visiting from out of town, or a spendy parking ticket. Surprises happen so often that they shouldn’t be a surprise.
Setting aside a little cash each month to cover these expenses is a great way to make them less unexpected. Leaving some margin could actually help you stick to your budget. Anything you don’t use from this category can be added to your savings at the end of the month. But resist the urge to spend this money on lattes, take out, or a sale at your favorite online store. Otherwise, it defeats the purpose of having margin in your budget.
Budgeting Tips and Tricks
As long as I’ve been budgeting, I’ve been using Excel. I love it because it gives me a lot of data for planning and the ability to spot trouble areas. It also helps us see our accomplishments and celebrate how far we’ve come.
This is the Excel grid I’ve used since 2011. Feel free to download it and make it your own.
If you don’t love Excel or know how to use it that’s totally cool. You still need to budget. In the last post, I listed four apps that will do most of the work for you. You can find the list here.
A notebook and pen also work great! There are a many benefits to physically writing things down. Not to mention you can have as much fun with it as you want.
Maybe using cash is the budgeting trick for you. Google the envelope system for thousands of tips to get started. This system, made popular by the book The Total Money Makeover, is a cash-based system. The idea is to create an envelope for each budget category and put the exact amount you budgeted in it. When the cash is gone it’s gone for the month or pay period.
Last but not least, automate everything you can. Our retirement savings is set up to automatically transfer each month. Every bill that can be paid automatically, is. This is a great way to make sure we actually pay ourselves first. It also eliminates any potential late fees and makes my life a whole lot easier.
Advice from the Free Spirited Spender
I’ve told you how saving and Excel grids are my love languages. Now let’s talk about those of you who cringe at the mention of either of those words.
My husband, Jer, is more of a spender and not quite as detailed. He doesn’t understand the importance of reporting whether something was $31.49 or $31.50. As you can imagine, this drives me nuts. But even without natural attention to detail, he’s learned how to make budgeting work for him. Here are some of his best tips.
1 – Stay on Top of It
Save your receipts and compile them weekly, not monthly. You’ll be less apt to stay on top of it if you let them pile up. When you compile your spending, you’ll recognize any frivolous patterns that might need adjustments. This is especially important if budgeting is new to you. Revisit your budget and monitor your spending often.
2 – Prioritize
When you get paid, allocate money to pay your bills first. Then pay yourself second. Always keep an emergency fund and make it difficult to access. You could set up a second bank account and say no to the convenience of an ATM card and checks.
3 – Cash it In
Jer suggests paying for everything in cash and limiting how much you have you so that you don’t overspend. He also suggests carrying a credit card for emergencies, like car troubles. If you are a sucker for impulse purchases, I suggest forgoing the credit card.
4 – Ask for Help
We are all wired differently. Some people are naturally better at this budgeting stuff. Ask those people to help you get started.
If someone offers to help you out, please take it seriously. They won’t expect you to be perfect. But they’ll be disappointed if they give you hours of their time and you don’t follow through.
Sticking With It
No matter how much you make or how much you have saved, I believe you should always keep a budget. Here are some tips to reap the rewards for years to come.
1 – Don’t Give Up
It takes a while to learn this stuff. Even if you’re a super geek like me. You might screw up, and that’s totally fine. That’s how we learn. Don’t focus on the mistakes you’ve made or how slow you’re going. Take note of how far you’ve come, celebrate your accomplishments, and keep going.
2 – Learn to Say No
It’s not easy to tell ourselves no. We humans are experts at justifying anything, so here’s a great tip.
If you want to buy something that’s not in this month’s budget, make a note to add it next month. That cute dress will probably be on clearance next month anyway. Or even better, you might decide that you don’t need it at all.
3 – Get Creative
If your entertainment budget is gone for the month and a friend asks you out for lunch, ask if you can schedule it for next month. Or maybe you could pack a picnic lunch and meet in a local park instead. How about offering to host a happy hour at your house later in the week? There are a million ways to make it work and have fun without spending money you don’t have.
4 – Remember Your Why
Remember why you’re doing this in the first place. Maybe you’re sick and tired of worrying about making ends meet. Or perhaps one more money fight with your spouse will push you over the edge. If you have kids, maybe you want to lead by example so that they don’t have to suffer the way that you did.
Decide why you want this and think about that why as often as you can.
5 – Believe
Believe that you have the discipline and persistence to do this. Believe that you deserve it. In the words of Henry Ford, “Whether you think you can or think you can’t, you’re right.”
6 – Have Fun
Learning to budget and finding new ways to save money can be a lot of fun. Enlist some of your like-minded friends to join you on your journey. Find new ways to live life to the fullest without spending your life savings. If you treat budgeting like a burden, you probably won’t stick with it. So have fun and enjoy the journey.
Ready to change your financial future? Check out these posts to learn everything you need to know to go from surviving to thriving.
Step One – Figure Out Where The Eff Your Money Is Going
Step Two – Create a Budget That Works For You
Step Three – Save For Financial Freedom
Step Four – Ditch Your Debt
Step Five – Build Wealth on Any Income
Step Six – Achieve Your Goals As A Couple
Editor’s Note: This post was originally published in May of 2017. It has been completely revamped for accuracy, comprehensiveness, and readability. Please enjoy and feel free to share this newly revised content.