Learning how to create a budget can be pretty challenging. Learning how to create a budget that you’ll stick to can be even harder.
We’ve all been there. We try spreadsheets emailed from older relatives, using the old pen and paper method, and, finally, going digital with a few different apps.
I know the feeling. Learning how to create a budget used to feel like getting a master’s degree in frustration at our house.
Now, Taylor and I can knock out our zero-based budget in under 30 minutes.
(Sidenote: We currently use an app called EveryDollar and I absolutely love it and highly recommend it.)
A zero-based budget is where your income minus your expenses equals zero. That doesn’t mean you have zero dollars in your account or that you spend 100% of what you earn. It just means that you have a plan for every single dollar you earn.
Taylor and I have a set budget meeting on our calendar. On the 4th Sunday of every month we discuss where we fell short that month and what changes need to be made for the upcoming month.
If she needs new shoes, she tells me and we set money aside for it. If I want to go do something fun, we plan for it. There’s no hiding new clothes or other purchases. If we need something, we communicate like adults and make it happen.
The reason this works so well is it puts you in control of your money instead of having your money control you.
How To Create A Budget
1. Create Goals
To create a budget, you must have some short, medium, and long-term goals to keep you locked in.
Like I said earlier, there are going to be times you have to say no to hanging out with friends. In those moments, you must know what it is you’re saying yes to.
One way to figure this out is to grab a sheet of paper and write some variation of the phrase “I want to change my finances so that….” at the top.
Underneath that, list every single thing you can think of positive or negative.
For example, “I want to change my finances so that my spouse and I don’t fight about money anymore.”
Or “I want to change my finances so that I can retire with money.”
Believe me when I say that you will want to quit. There will be months where you get your butt kicked by life and you’ll want to give up on budgeting. It happens.
This step keeps you from quitting by reminding you why you started in the first place.
So get your list done, print it out, and tape it somewhere you’ll see it regularly. And on those tough months where you fall off a bit give yourself some grace.
It’s impossible to have the perfect budget set every single month. But having one will help you get back on track much easier than you would if you didn’t have one.
2. Calculate Your Income
It’s impossible to tell your money where to go if you don’t know how much you expect to come in.
Now for those of you with set salaries, this step should be fairly easy. All you’ll need is to check your last pay stub or direct deposit and find the amount you made. That’s it.
If your earnings are based on commissions, tips, etc, you’ll have to do a little more work. What you have to do is establish what’s called a baseline.
A baseline is the minimum number you expect to make each month. I would personally look over my last 6 months of income, find the lowest number, and create my budget around that number.
3. List Monthly Necessities
Most of us struggle with budgeting because we aren’t actually budgeting. We’re just tracking our expenses and keeping a tab of the money we’ve already spent.
With zero-based budgeting, you list your expenses out before the month begins.
We start with everything related to the following 4 categories:
- Housing- rent/mortgage, electricity, water, phone, HOA fees, property taxes, etc
- Transportation- gas, car payment, routine maintenance, etc
- Food- groceries and dining out in separate categories
- Clothing- needs only. Anything extra should come from a fun money category.
This ensures that our basic needs are met before we move on to luxuries.
After that, we add everything else from any debt payments, to little league fees, to streaming services, to date nights.
4. Create Sinking Funds
Sinking funds are a great way to save a little each month so that the irregular expenses don’t catch you off guard.
Let’s look at an Amazon Prime membership for example. We have one and it costs us $99 per year.
Instead of being caught off guard by this every August like we used to, we now have an Amazon Prime line item in our monthly budget. We took the $99 per year and divided it by 12 months to give us a total monthly amount of $8.25.
You can do this for routine car maintenance, birthday/anniversary gifts, vacations, taxes, insurance, and anything else that doesn’t get paid monthly.
5. Make Sure Your Numbers Are Realistic
One problem people have with sticking to their budget is their numbers are too unrealistic.
You have to be honest about your lifestyle. For example, I travel A LOT. Which means we probably spend more on food than a lot of other bloggers would say is necessary. But I know most of the hotels I stay in don’t have full kitchens or even a fridge for me to store food.
Instead of low-balling the number and getting frustrated, we set a realistic number that works for us.
And that’s the key. The numbers have to work with your lifestyle.
There are no set percentages on things like food. I can’t tell a super busy family of 5 with a monthly income of $3,000 that they only need to spend 10% of their income on food. That’s $300 per month for 5 people. While it’s possible, it’s not likely that they’ll stick with it.
On the other hand, telling a single guy who makes $10,000 per month to spend 10% of his income on food isn’t practical either.
Set realistic numbers based on your family size and lifestyle if you want to have a budget that isn’t frustrating and overwhelming.
6. Add In A Little Fun
The purpose of a budget isn’t to limit the amount of fun you can have. It’s about helping you achieve the goals you’ve set.
With that said, give yourself a little bit of “fun money” every month. If you’re married, sit down and discuss a reasonable number that makes sense for both of you.
It’s okay to live a little bit while on a budget, but make sure the amount you decide on lines up with your goals. It’s probably not a good idea to be blowing several hundred dollars per month while trying to get out of debt.
Also, when the money in this category is gone, it’s gone. The fun is up until the next month.
Sure you’ll have to say no to an invite every once in a while because you ran out of fun money, but what’s really happening is you’re saying yes to what you really want instead of overspending on something that isn’t essential.
You’re saying yes to that dream vacation. You’re saying yes to early retirement. Yes to having enough money to be a stay-at-home parent.
A little bit of fun money actually helps keep you engaged in the process, but don’t let it take away from the ultimate goals.
7. Do It Every Month
I’ve already touched on this, but you have to sit down and create a budget specific to each month.
Why? Because each month is different.
Mother’s Day is in May which means May’s budget will look a little different than the one for January.
What we do is pull out the calendar and look to see what we have coming up. If we’re planning to take a short trip back to my hometown, we add up the costs and create a line item in the budget for it.
Setting a budget in January and expecting that one budget to carry you through the entire year is a recipe for disaster.
By spring break, you will have quit the entire process doing it that way.
Take a more proactive approach by sitting down for 20-30 minutes before the month begins and knocking out your budget.