HOW TO SET A BUDGET
There has been a lot of buzz and discussion around budgets over the past few years, which I LOVE because I know first-hand just how important they are! Some of this buzz is positive, from people like me who want others to take part and reap the benefits! But much of it seems to be negative from people who either can’t seem to stick to it, see it as keeping them from enjoying life, or don’t know where to begin! Living by a budget takes discipline, which I know sounds strict and intimidating, but this is FAR from the truth, especially if you follow my quick and easy tips for how to successfully budget and actually stick to it!
Start your budgeting session by thinking about your goals. These should be specific so you know what you’re truly wanting to accomplish. You also want these to be realistic and attainable, which will be the first step in setting yourself up for success. Think about why you want to budget- do you want to have money in savings? Live beneath your means so you stop living paycheck to paycheck? Be able to take vacations? There can be lots of reasons, but I advise that you write these down and use them as motivation and a reminder that YOU WANT THIS!
Now that you have set your goals, write down your income. This is going to be the number you will base your whole budget around, so it is important to account any and all income here! If you have a variable income where the amount of money you’re taking in every month changes, take an average of the past three to six months and use that as your “income” number. It is best to be realistic about this number and would be better to underestimate rather than overestimate if you are not sure. You need to be very clear about your current financial status and what you have to work with.
Now that you know just how much money you have to work with, make a list of expenses you have every month. You need to get very specific with this. Some categories might include groceries, rent or mortgage, utilities, home and car insurance, gas, debts or loans, etc. You should use your bank statement to help you identify some of these categories and also help recognize where your money is going. Once you have these written they can be sub-categorized into NEEDS (fixed expenses), WANTS (variable expenses) and SAVINGS (wants for the future).
With your categories written out, fill in your set expenses. For example, if the rent on your apartment is $1100 per month, you can write that in your RENT category. With that written down you can subtract $1100 from your income total. You will continue to do this with all of your fixed expenses, subtracting the numbers and recording them as you go.
Once those have all been recorded you will want to move onto your variable expenses. Let’s say after you’ve accounted for all of your fixed expenses you are left with $1550. You now want to address which of your variable expenses are most important to you. These might include things like groceries, eating out, clothes, entertainment, and savings. Groceries might be more important to you than going to a movie, so groceries would be higher up on your priority list. By looking at your remaining categories you can kind of give an idea as to how you want to divvy this money up. Since groceries seem to be a struggle for most people, my recommendation for groceries is $100 per person in your family per month on groceries. This can change if you live alone or there are only two of you at home, then I advise between $125 and $150 per person. You can save so much money by planning your meals and cooking/ eating at home. You can divvy your remaining money up however you would like between your remaining categories, but once the money is gone it is GONE. Be wise with what how you delegate your money! If you find that you don’t have enough money to cover each of your categories, go back and re-prioritize. If you have the opposite problem and have money left over, I advise putting this extra money towards debt! If you do not have debts, I advise putting things towards savings, but it can be put in whichever category you feel is a priority.
The beauty of a budget is that it can change month to month in your “variables” so you can make it work for you and what you want to accomplish. A budget allows you to control your money and not let your money control you.
Here is a good Budget-Template. Feel free to download and use for your own budgeting needs! If that template doesn’t work for you, you can always get another one here
How do you budget for bigger items like car replacement or a vacation?
This is a really good question and is something I want to go into more detail on! The quick answer, and what has worked well for us, is setting a separate budget or “envelope” for each item and putting a predetermined amount towards it each month. Sometimes that’s just whatever money is left over after everything else is accounted for, sometimes it’s a set dollar amount. It also helps to give it a time in which you want to accomplish it. I hope that helps!
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