If you would have said the word “budget” to me three years ago I probably would have ran away screaming in terror.
Who wants to budget? That’s what my grandparents did during the Great Depression, along with eating shoes and using corncobs for TP (come to think about it, that might explain a lot…).
But here’s the thing: I was tired of being broke as f$%k all the time. I wanted to afford something more in my life than a run-down apartment with appliances that belong in an antique museum, and I wanted to see the world.
Fun fact: you can’t do those things without budgets.
Since I created my first successful budget, I’ve finally been able to make progress towards my goals. Yes, it can be a hassle to create and maintain, but thanks to my budget, I can afford to travel abroad for the first time ever. I’m going to Peru, m^*@&#%^@#$^s!
A budget isn’t a set of handcuffs. It’s the key to your freedom, if you create your budget right. In this post, I’ll show you how.
Contents
Create A Budget Draft
The actual process of creating the budget isn’t as bad as it sounds. It’s involves two simple steps:
- Choose your categories
- Allocate your money among the categories
This stuff isn’t rocket science. I only failed math in college like twelve times, after all, and somehow I’m still able to figure it out. Of course, there’s more to being a successful budgeter than that, but these are the basic steps to actually create a physical, real-life budget.
If you followed along with my first two steps in this guide—examining your current spending patterns and setting financial goals—then you’ll be all set for this step. I’ll also guide you on how to be successful in keeping up with your budget throughout the rest of this Budget Like A Boss series (see links at the end).
Pasha cat wants to make sure she is accounted for in the budget.
Choose Your Budgeting Categories
When I looked at my current spending patterns in the first step, I tucked all the messiness of my life into nice, simple, discrete categories (except for the Miscellaneous category – that one was a hot mess). Now, we’re going to go back through and decide which categories are really important.
Which categories really represent most of your spending? Which ones do you want to keep tabs on so you don’t get too crazy with your spending? What do you want to save up for? Do you need to add any new categories to track after looking at your current spending patterns?
For example, I had tracked Parking expenses in its own category. I only spent an average of $16.67 each month, and that was due to work engagements. I’m not spending money on parking anymore, so it doesn’t make sense to track it. Groceries, on the other hand, are an expense I have to pay each month no matter what so it does get its own category.
For some more ideas on what categories you might want to track, Seedtime also has a great list.
Here are the ones I use:
- Monthly Bills
- Rent
- Phone
- Internet
- Netflix
- Renter’s Insurance
- Car Insurance
- Vehicle Registration
- Everyday Expenses
- Groceries
- Fuel
- Lindsay Fun Money
- Zach Fun Money
- Restaurants
- Clothing
- Household Goods
- Laundry
- Pets
- Entertainment
- Miscellaneous
- Rainy Day Funds
- Car Repairs
- Birthdays
- Christmas
- Health
- Savings Goals
- Car Replacement
- Travel
- Zach School
- Oh Sh!t Fund
- F^%k Renting Fund
- Side Income Taxes
- One Month Buffer
- Debt
- Auto Loan
- Student Loans
- Personal Loan
Allocate Your Money
You have a set amount of money that you bring in each month. This is what you have to play with.
To make things simple, we’re going to break categories up according to needs and wants. Needs will get the first crack at taking your dollars; they’re the most important things.
Order your needs based on order of importance. Things like rent (or mortgage), food, and electricity should be of the highest priority and should receive money first (sorry, Girl Scouts and your delicious cookies!). For us, it goes something like this:
- Rent
- Food
- Electricity
- Debt Payments
- Savings (for essential things like retirement and emergency fund—not for hovercrafts, sadly)
After you’ve allocated all the money you need to pay your needs, then you can proceed on to your wants.
Ordering your wants by level of importance is also a good idea. Use your ordered list of financial goals that you created in the last step to guide you. Mix your financial goals in with your other wants, like monthly fun money, pets, and polka-dotted underpants.
Is paying off debts more important than saving for a house? Is dining out more important than buying clothes? Here is where you get to really show off how much you value each of the things in your life. Keep allocating money to your wants according to how much you value them until you run out of your income for each month.
For an actual example of how this works, check out this video:
Your Budget Is A Living Document
It can be really frustrating to go through this exercise, especially if you have a low income. You want to do a lot of things, but money is holding you back. I understand; I’ve had to be the party pooper who couldn’t do things with friends because I was broke before too.
Remember, though, you can always cut back your expenses in some areas and even earn more money. If you want something bad enough, there are ways to get it.
Related post: Make More Money: A Fear-Busting Game Plan To Start Side Hustling
Your budget is also a living document; it should change with your situations. If you suddenly decide to take up a new hobby, have a major life event, or even just change your values as you go through life, you should update your budget. You might even decide you want to tweak something next month. Go for it. It’s your own plan!
Related: Budgeting For Budget Haters E-Course (affiliate link)
I’ll show you how to keep up with your budget in the next steps, but remember: a budget is your key to ultimate freedom, not handcuffs that keep you from eating too many takeout lunches.
What Do I Do Next?
Congrats! This is the third post in my Budget Like A Boss series. For more info on how to set up a successful budget step-by-step, check out the other posts below:
- What Are Your Current Spending Patterns?
- Set Kick-Ass Financial Goals
- Create A Budget <- You are here!
- Track Your Spending
- Create A Badass Money Saving Plan
- Adjust Your Budget
Have you created a budget yet? How has it worked out for you? Leave a comment below!
A budget is absolutely a living document. My wife and I have a “budget meeting” every month to go over our progress and we make adjustments when needed. At least twice a year, we go over the whole budget again and compare it to our average spending for the past 12 months to make sure things are realistic and that our money is going where we want it to go.
That’s a great idea to go over the budget periodically and compare it to the past 12 months. I think I need to start doing that.
I’ve also tried doing weekly budget meetings with my husband, but sadly he’s not as interested in the nitty-gritty as much as I am. Maybe if I backed it up to once a month I’d have more to say, rather than “Hey – we still got lots of bills to pay this week.” Something to consider.