I Need to Budget. Now What?

You find yourself needing to stretch your dollars a little further each month to fight inflation, and you wonder where your paycheck has gone (and how it keeps disappearing so quickly!) You decide that maybe you’ll try something different. Maybe you’ll try…a budget! Yes, you are going to give it a go and drive into being more intentional about your spending.

Now what?

Before we get into budgeting mechanics, let’s talk about what a budget is and isn’t. A budget is simply a spending plan. It allows you to plan your spending ahead of time so you can be more deliberate about where your money goes. A budget is not a a set of rigid rules to constrict you, but rather boundaries to serve and protect you. Much the way the boundary for a child might be “don’t chase a ball into the street without first looking both ways” to protect them, a budget provides healthy boundaries to help you get the most out of your money. By working through your budget before a month begins, it allows you the freedom to prioritize your spending instead of emotionally spending as you go. It should be freeing not constricting.

Budget Basics

Here are some good mechanics to follow when building your first budget.

Do a monthly zero-based budget. A zero-based budget means you list your income at the top from all sources and work on your spending plan until you have accounted for every dollar of income for that month. By working on your budget until you have a place for each dollar to go, you will end up with zero dollars to allocate at the end of your budgeting process (thus “zero-based”). Build your budget prior to the start of the month so you are prepared with your spending plan on day one.

Find a method or tool that works for you and stick with it. You can use Excel or Google Sheet, a pencil and pad of paper, or an online tool like Mint or EveryDollar (my favorite). There are a lot of free tools out there. I like EveryDollar for its simple interface, its zero-based budgeting approach, and because it allows you to copy the previous month’s budget as a starter for next month saving a lot of time. Anyone can use the free version to create a monthly budget. There are advanced features that you can access from the paid version, but you can build and track a budget effectively without them. Whatever platform or tool you pick, commit to it for at least three months so you can focus on the budgeting and not on evaluating tools. Once you select a tool, you are ready for the nitty gritty of budgeting.

Budgeting Steps

1. List your income from all sources. If you are married with two incomes, have a side hustle, a rental property, or a tax refund coming your way, list all of those sources of income for the month at the top of your budget. Add up these sources and you have the limit on the money you can spend for the month.
2. List your basic expenses first. If you remember Maslow’s Hierarchy of needs from school, that is the basis of your budget. If you don’t remember it or wonder who Maslow is, don’t worry, you don’t need to know to budget well. Abraham Maslow was an American Psychologist said humans work to get their physical needs met first. Following that thinking, budget first for food (groceries, eating out), clothing (new clothes, dry cleaning), shelter (mortgage payment or rent, utilities like electricity, water, natural gas, house maintenance, homeowner’s insurance), and transportation (car payment, gasoline, tolls, car maintenance). With those basics in place first, you’ll make sure you can eat, sleep, keep the lights on, and go to work.
3. Prioritize the rest of your spending. With the basics covered, you can move on to other spending categories. Do you give money to a charity or your church? Write it down under a “giving” category with a line for each charity. Think through your month and pull up recent bills to see where you spend your money. Do you have kids in activities that require you to pay registration fees or expenses? Write it down under “Kids Expenses.” Do you have travel? Does someone you know have a birthday approaching and you want to buy a gift? Do you want to budget for your morning coffee before work? The great thing about a budget is you control it. If you love to go to the movies, go to sporting events, see plays in a local theatre, load up on your favorite hobby materials at a local craft store — it is all in bounds and up to you. The trick is to remember you are not in Congress, so you can only spend up to the amount of money you make each month, not a penny more. As long as you plan to spend within your income, how you allocate your money is up to you. At the end of this article, I have some suggested categories and a list of resources to help you think through the line items for your first budget. Take a look to help jog thoughts on where you need to allocate money in your budget.
4. Make adjustments. After you thing you have everything listed and are to zero dollars left for the month (yea!), you are likely to remember something you didn’t add in your budget. Ah, yes, the HOA fees are due. We forgot to budget for that trip to visit Aunt Carol at the end of the month. Or maybe you forgot to list that new streaming service you just signed up for last month. Whatever it is, go ahead and add it with the amount. Now you get to look through the rest of the budget to find enough money to get your bottom line down to zero again. You might decide to take $20 out of your restaurant money and $30 out of your grocery money to get that $50 line you forgot to add in the beginning for you babysitter you need once a month for your guys or girls night out. Whatever it is, expect that you will have a few forgotten items that you need to adjust for once you think you are done.
5. Follow your budget. You, yes you, put this budget together. It represents your thoughts and your priorities about where you need to spend your money. You took the time and effort to put the budget together, now take the time to make it effective by following it. Your budget is only as good as your ability to let it guide you through your month. If you take your budget and put it on a shelf and never look at it, it’s of no use to you. Do yourself a tremendous favor by looking at your budget on a regular basis, maybe every few days, and tracking your spending against it. Take it with you or check it before you head to the grocery store so you know how much money yo u have for this trip to the store. Use that advanced thinking and planning to spend within your budget for each category. Doing so provides the boundaries to keep you financially safe, which was your intention when you decided to start budgeting in the first place.
6. Track your spending. To track your spending, pull up your bank account online and record the transactions every few days under the proper spending category. Tools like the premium version of EveryDollar (subscription required which costs $79.99 annually as of this writing), will allow you to connect directly to your bank and pull in your expenses. Some even have a feature where they will “remember” your recurring expenses and know, or example, that your Chick-fil-a expenses go to your “Eating Out” category on your budget. This can be the most tedious part of the budget process. If you don’t have the patience or discipline to track every expense, it may be well worth the money to you to buy the premium version of EveryDollar or find a tool that connects directly to your bank and allows you to pull transactions into your budget.

Tips

If you are new to budgeting, here are a couple of tips that will help you as you get used to the budgeting process.

• Access your previous month’s bank statement as you set your first budget. Looking through your online or paper transactions will help prompt you on the ways you spend your money. Using your statement and the categories below will help you make a solid first budget.
• You won’t be good at budgeting the first month…or the second month. Most people find that things start to get easier in month three. If you missed a bill in your budget or a whole category, add it, rebalance your budget to get to zero, and move on to next month. You’ll naturally get better as you go.
• Ready for some good news? The short-term payoff for all this work is found money. Most people find several hundred dollars of spending they can eliminate once they start budgeting. I recently helped a woman find over $1,000 a month when I guided her through the budget process. That’s real money, folks!

Budget Category List

This is not exhaustive, but it should be helpful in getting you started. There is nothing magic here. How you organize and group your expenses is up to you. I put car payment under debt, but it could also go under transportation. The important thing is to list all expenses and not spend more than you make.

Budget Category	Example Expenses
Housing	Mortgage, rent, HOA fees, property taxes (if not escrowed), home maintenance
Food	Groceries, restaurants
Utilities	Water, electricity, gas
Transportation	Gasoline, maintenance, repairs, registration/inspection, tolls
Clothing	Back to school, job change, seasonal clothing
Medical	Doctor visits, prescriptions, over the counter medicine
Giving	Church, charity, monthly donations, one-time gifts, kids fundraisers, end-of-year giving
Saving	IRA, emergency fund, sinking fund, investments
Insurance	Life insurance, homeowners, auto, rv, boat
Services	Cell phone, internet, streaming services, tv/cable
Miscellaneous	Entertainment, pocket cash, nails/salon, coffee, travel, security, hobbies, furniture, electronics, hobbies, date nights, sporting events, decorations
Gifts	Birthdays, anniversaries, Christmas or seasonal gifts, weddings, religious events
Kids	Registration for clubs or sports, band or extracurricular fees, school supplies, competition entry fees, tickets to kids’ events, tuition
Debt	Student loans, auto, personal loan, repayment of friends