Are you interested in creating a budget?
The average family carries a lot of financial stress. Most people have student loans, credit card debt, a mortgage, car loans, and sometimes even other forms of debt.
However, not many people have a budget.
According to a survey done by Gallup, 68% of households in the U.S. do not prepare a budget.
I believe budgets are extremely important and nearly everyone should have one. Rich, poor, middle-class, whatever you are, a budget will likely help improve your financial situation.
Some people think budgets are only for people living paycheck to paycheck, or those with no money.
WRONG!
Budgets are for everyone.
Yes, that means no matter how much money you make, you should probably have a budget. I recently read something that said couples who make $50,000 a month, on average, only save 4% of their income. FOUR PERCENT on a $50,000 monthly income? The majority of that monthly income went towards clothing, food, cars, and homes. I can’t even imagine how someone could blow through so much money each month.
This just proves my point, more people need a budget.
Budgeting may not be the most fun thing in the world, but it needs to be done. Budgeting can help you take control of your financial life, which can help reduce stress and let you reach your dreams.
Other budgeting-related articles you need to read:
- A Cash Budget May Be The Diet You Need
- How I Manage My Finances So I Can Save Time and Worry Less
- The Ultimate Emergency Fund Guide
- Why You Should Pay Yourself First
- How To Save Money – My Best Money Saving Tips
- 14 Best Books About Budgeting
Below are my tips on how to make a budget and creating a budget.
The positives of creating a budget.
Budgets help people manage their money better. It’s that simple.
Budgets are great, because they keep you mindful of your income and expenses. With a monthly budget, you will know exactly how much you can spend in a category each month, how much you have to work with, what spending areas need to be evaluated, among other things.
Budgets have helped people reach their goals, pay off debt, make more money, retire, and more.
Should a budget be electronic or on a piece of paper?
Everyone has a preference, so this depends on what will work best for you.
Pencil and paper can be great, but an electronic version (such as a spreadsheet, Mint, or Personal Capital) can help you easily make changes.
I suggest choosing whatever you are most comfortable with. It doesn’t matter how you keep your budget; it’s just important that you stick to it.
Side note: I recommend you check out Personal Capital. Personal Capital is similar to Mint.com, but much better. Personal Capital allows you to aggregate your financial accounts to easily see your financial situation. You can connect accounts; such as, your mortgage, bank accounts, credit card accounts, investment accounts, retirement accounts, and more. And it’s FREE.
You MUST track your income and spending.
What you want is to create a realistic budget. To show you where your money is coming from and where it is going, you need to gather all of your receipts, bank and credit card transactions, and so on.
Or, you could even take it a step further by tracking everything for the next month or two, this way you know you’re not missing any expenses. This means recording every single transaction with a note that tells you exactly what you bought (if a receipt is not itemized). Then, at the end of the month, you can evaluate your spending.
After one month of closely tracking your spending, I’m sure you’ll be shocked by your results. This is the best way to create a realistic budget, as you will truly see where your money is going, and this will help show you how much should be dedicated towards each category in your budget.
Plus, the shock from seeing exactly where your money is going will encourage you to be wiser with your spending.
Budget category: Income.
For the income part of your budget, it can be from varying sources. You can include income from your day job, rental properties, side jobs, passive income sources, and so on.
One common mistake is that many don’t realize their income can drastically fluctuate from month to month, even when you work the same hours every month or if you are paid salary. Due to this, you will want to be mindful of whether you are paid twice a month, every two weeks, once a week, etc. The difference of when you are paid can change the amount you make each month. Budgeting with a fluctuating income can be difficult, and in a future blog post I will go over it in more detail.
Also, I don’t think bonuses should be included in a person’s budget. Including them in your budget is not usually the best thing to do unless you are 100% certain you are receiving the bonus. I have heard of far too many people who have counted on bonuses only to be let down when it was less than anticipated. Your budget should be realistic, not a fairytale.
Related:
- 75+ Ways To Make Extra Money
- 10 Things I’ve Done To Make Extra Money
- Ways To Make An Extra $1,000 A Month
- The Ultimate Guide To Extra Income
Budget category: Expenses.
Have you ever truly totaled your expenses?
When making a budget, many people only estimate their expenses. However, you actually should be taking your realistic expenses and putting them in your budget as your estimations may be way off.
Here are expenses you may include when creating a budget:
- Home – House payment, rent, maintenance, utilities, insurance, property taxes, etc.
- Car – This includes all car expenses such as your monthly car payment, gas, maintenance, insurance, license plate fees, and so on.
- Television, cable, Netflix, Hulu, etc.
- Cell phone.
- Internet.
- Food – This includes all groceries, eating out, snacks, etc. Seriously, sit down one day and add up your food expenses for the month before.
- Clothing.
- Entertainment – Entertainment can include many things, such as going to the movies, going out for drinks, concert tickets, sports, and so on.
- Charity – If you regularly donate to charity, then this should be an area you budget for.
- Savings funds – This can be for your retirement fund, wedding, travel, etc.
- Taxes – If you are self-employed, then taxes will make up a large part of your budget.
- Health insurance.
- Miscellaneous – Pet expenses, fees, childcare, school, gifts, etc.
Related posts on creating a budget:
Keep your loved ones involved when creating a budget.
Even if only one person manages the family’s finances, the other person in the relationship should, at least, have somewhat of a clue. Conducting regular family money meetings is crucial to having a successful budget and meeting financial goals.
A budget doesn’t work if the other person doesn’t even know it exists!
Make changes when/if needed when creating a budget.
I recommend going over your budget on a regular basis. This may mean once a week, once a month, or something else. Do what feels right for you and what you think your situation calls for.
Many things can change in your budget. Your income may change, your expenses may change, or your goals may change. When something changes, you should adjust your budget to reflect that.
You may have noticed a recurring theme in this budget post, that you should be realistic about everything. Be realistic about what you make, what you spend, and if things need to be changed.
Do you believe in the power of creating a budget? Why or why not?
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Budgets are awesome. If done correctly, they make financial dreams a reality, and allow you to buy things you never thought you would be able to afford!
Yes!
A budget helped me pay off a $5000 credit card pretty fast (in 6 weeks) last year. I had no idea I was spending $50 a week on coffee alone, not to mention buying lunch from the local shop rather than making my own at home and taking it to work. Seeing where your money is going is the biggest advantage of a budget so you can modify your spending.
I did a blog post on my blog about this. Link is in the commentLuv link. Also, the post invites people to get a copy of the spreadsheet I use on Google Docs which is all set up to calculate your spending. At some point I plan on doing a post or video taking people through how I fill it out each week.
Great article, Michelle. 🙂
Great job!
Awesome! Thanks for the insight ☻
I setup a budget last year, and it has saved me from going completely broke on more than one occasion. Before, I’d just look at the bank account and be like “I have $3,000, I’m rich, beeyotch!”
Once I started budgeting though and parsed the $3,000 out to different expenses, I started to panic because I didn’t even have an emergency fund – something that I’ve since started and has definitely prevented me from going completely broke. In one month alone, my house needed emergency repairs of $2,700 and my truck broke down and needed a $2,000 repair. I woulda been up $hit creek if I hadn’t started budgeting last year and saving for an emergency fund!
Good job!
I definitely believe in the power of budgeting! I think it is more as a “spending plan” now, though. It’s just an outline a create to keep us on track!
Yes, same here.
I’m a big fan of budgeting! It’s has helped us pay all of our bills and survive when things were tight and save up for my husband to go to school full time when we had a bunch extra to save – no student loans! I make up a budget spreadsheet for the month and then I print it out and track our spending on it under each budget category. It’s what works best for us at the moment.
Great job!
A great overview. So important to have a plan for your money no matter what your income. Tracking your net worth is a great tool as well to look at your financial big picture.
Yes, that’s very important as well.
Ok, I’m still trying to wrap my head around blowing through $50,000 a month!!! I can’t even imagine that…that just proves that no matter how much money you come into, if you can’t manage a little bit of it, you won’t be able to manage a lot of it.
Yeah, it’s pretty insane!
I’ve been tracking our expenses for about 18 months, and tried using a clearly categorized budget for about four months, but decided to set it aside. For starters, my husband wasn’t into it at all, so it as more challenging to manage it myself. Secondly, I struggled with including all the necessary categories, and forecasting exactly what we would need for them every month. Then I heard a guest on a Martinis and Your Money odcast talk about his household’s simple budget, which appealed to me much more. They just designate a large chuck of funds every month for all spending, without creating specific categories. The simplicity of this system appeals to me, so I’ve switched to using it, rather than a more elaborate budget. And since I still track spending, I’m aware of where our money is going every month.
That sounds like a great way to budget! Different things work for different people 🙂
Great article! I’ve noticed that when people start tracking something, they tend to focus their attention and improve it. For example, I work in healthcare purchasing and notice that hospitals will figure out ways to reduce expenses once they start tracking it. Similarly, I’ve been exercising regularly and maintaining a healthy diet because my Fitbit has been tracking my exercise time while an app has been tracking my meals.
Thanks!
Budgets are very important! It helped me save money to quit my job, go back to school and not have to worry about getting into any debt. It’s a great way to keep track of your expenses and accomplish a savings goal. I loved reading your tips!
http://www.mintnotion.com
Thanks!
I totally agree that people need a budget. I’d like to expand on something you said about budgets and goals. I believe that it’s easier to create, manage, and follow a budget when there’s a goal in place. When you have a goal, you know why you are budgeting and you know what you’re going to accomplish if and when you are successful with your budget.
At times, people fail to effectively execute their budgets because they are more focused on just squeezing income and expense just to ensure that they are on budget. However, they fail to focus on the goal part of budgeting.
In short, making and following a budget should have a purpose.
Yes, great tip!
Maybe this is my problem. I’ve always budgeted, from the time I got married 47 years ago, yet we have almost no savings and we easily blow through more than $50,000/month. Basically what I do is tell myself how much is allotted for spending in each category, track all my spending, and then see how much I went over in every category. We don’t have vacation money, or “fun” money. Every category is essential items like food, house, car, utilities, etc. What I need to know is how to not overspend when every penny is earmarked for important things.
$50,000 a month or a year?
I wish!
No, $50,000/year
Sorry about that.
Haha, okay, I was about to say “AHHHH” if you were blowing through $50,000 a month.
I am definitely a fan of budgeting. Sometimes it takes a little time and effort, but it’s worth it in the end to stay on track and maximize your income.
Yes, definitely worth it.
I cannot live without budgeting. But it was not always this easy. For me, the easy part was creating a budget. The hard part was sticking to it. That is where the discipline comes in. Can you imagine how hard it is to turn down a bag that’s on sale for $50 when the original price was $150? You really have to look at your needs, wants and goals. That’s what gets me through.
Yes, sticking to one can be difficult!
When I first made a budget a few years back, I was extremely shocked to discover all the wasteful spending I was doing.
I never would have realized that and changed my spending behavior without first making a budget.
It just goes to show how valuable making a budget can be!
Yes!
Budgeting has helped me pay off a ton a debt! I am huge fan of it! 🙂
Great Post, Michelle! 🙂
Awesome!