How To Budget

So, you need to make a budget. Maybe you’re realizing your expenses are exceeding your income, and you’re not sure how this is happening. Well, I’m here to help! I’ve compiled 6 simple steps that will help you build a basic budget.

Go through your bank statements from the last 1-2 months

First step to making a budget is figuring out how much you’ve been spending, and what you are spending it on. You’ve got to look back on the last month or two and see your patterns. You have to look at both your regular account as well as any credit card accounts you may have. Both of these count as spending even if you don’t have to pay off your credit card right away.

I say to go through the last one or two months because this can help you really see a good spending pattern. Sometimes you’ll have an outlier month and if you build your budget based off of that it can be a bit overwhelming when you don’t have all of the actual facts.

Write down what you spent

I like to make categories of my spending. I have categories like food, miscellaneous, entertainment, pet, gas, and then bills. My dog's food goes toward pet, eating out goes towards food, unnecessary things go towards entertainment, and cleaning supplies, toilet paper, etc goes towards miscellaneous things.

One easy way to categorize everything is to print out your banking statements. I like to take different colored highlighters or pens, because I’m crazy and love color coordinating, and assign different colors to the different categories. This makes it easier to calculate all of your spending for the respective categories.

Figure out your income (lowball)

When you are calculating your income, one of the most important things is to underestimate your income. Even if you are 99% sure you’re going to get $3,000 every month, set your income between $2,500 and $2,800. This will help you if you have any surprise expenses, or if you have to take time off of work for one reason or another and you’re out of sick or personal time.

If you’re unsure what your income usually is, take your hourly rate, multiply it by the hours you typically work (or even the lowest amount of hours you will work per week), and multiply it by 4. This will give you your pre-taxed income, and I would suggest taking $200-$300 off of this number depending on what you claimed on your taxes, and how high the pre-taxed amount is.

Figure out your expenses (overestimate)

Throwing it back to the first two steps, calculate your total expenses. Start off with your set expenses every month. Rent/mortgage, food, gas, pet, phone bill, car insurance, water, trash, electric, etc. Once you come up with that total you will have some money left over. With that money you can do whatever you wish. You can add more into other categories, you can put it into savings, or you can add another category like entertainment if you want.

With this step you will want to overestimate your expenses. For example, if your typical water bill is $65, round up to $70 or $80. If your car insurance is $109.24 round up to $110 or $115. This again provides just a little bit of a buffer for you in case anything happens. I always recommend that you put any money possible into your savings account but if you don’t feel you need to then that’s totally fine!

Put it all in a spreadsheet

My favorite part is putting all of that information into a spreadsheet. I love seeing all of the numbers come together, because again, I’m crazy. When you put it in a spreadsheet you’re able to see how all of the numbers workout. You can really see if your spending is heavy in one category or another, and you can make adjustments if you feel that you need to. Sometimes you’ll feel like your estimated spending is too high, just try it out and you can tweak it later.

You can also put your past spending in a spreadsheet and compare it to your budget. This is a great way to really see how your spending has to change and what you need to do in order to meet your financial goals.

Tweak as needed

Sometimes you will budget too high or too low in categories and you have to go back in and make some adjustments. That is totally okay. Sometimes you just don’t quite realize how much something really costs until you totally blow your food budget and realize maybe $150 is too low for you. You don’t realize how fast money goes sometimes! I know I underestimated the food cost for my boyfriend and I. I was able to adjust our budget and successfully stay in my budget the next month. Anything you do is information. Maybe you spent too much at the mall, and that could show that you need to stay away from the mall until you can afford an “extra” or “entertainment” category. Maybe you need to go out to eat once a month to get time alone, and you need to be able to build that into your budget. Or if unexpected medical expenses come up, you can always tweak your budget month to month. Never be afraid or ashamed to change your budget depending on where you’re at in your life. I know my budget used to be really sad. I was scraping together coins trying to afford some extra food, and would spend my money on food for my dog to make sure he could eat.

Thankfully, I’m out of that now, but sometimes things are still tight. I’m thankful for my budget so I can see my spending and really reign it in when I need to. I can see when I need to maybe sell some stuff, or do some stuff on the side to bring in extra money.

ACTUALLY USE THE BUDGET

My biggest mistake when I have made budgets in the past is I would do great following my budget for the first few days to a week of the month. Then, I would just not follow it anymore and leave it and spend way too much and restart the next month. I have it on my daily to do list that I need to go through and update my budget. I will add in any purchases I have made, any money I have made, and where I’m at in each category. I even color code when I spend under or above my estimated amount.

Budgeting is such an amazing tool when you use it right and continue to use it! You can help yourself by building up your savings account, build up savings for travel, tattoos, piercing, whatever you want to buy.

You can do it! Budgeting requires discipline, and you just have to believe that you can do it. You are stronger than your impulses. You do not need that video game, you don’t need that sign, you don’t need the pair of shoes. You are doing just fine without it!