How to Create a Budget
Budgeting is like cilantro. You either love it or you don’t. And while we’re hard-pressed to understand why anyone wouldn’t crave those fresh herbs on everything from beef tacos to Indian butter chicken to BBQ pizza, we do understand a distaste for the monthly budget.
Let’s face it: Budgeting gets a pretty bad rap. You’ve probably heard that it’s time-consuming, boring and even restrictive. The truth is, a budget will change your life—perhaps even more than cilantro will! And creating your budget doesn’t require too much brain power or too many minutes off the clock.
What Can a Monthly Budget Do for You?
A budget gives you control over your money. You’re the boss. Shouldn’t you be the one who tells your money what to do? Harness this power and you could end up on a beach in Hawaii, soaking up the sun during your paid-in-cash vacation.
With a monthly budget, you can dream, plan and move forward with confidence to reach any of your financial goals. And we really do mean any. Making—and sticking to—a budget enables you to find margin in your money, pay off debt, save for the future and so much more!
How to Create a Budget
If you’re just getting started, check out our five easy steps for building a solid budget. After a few tries, you’ll breeze through this checklist in just minutes a month!
1. Budget before the month begins. Grab your calendar and a pen. Choose a day toward the end of this month to sit down and make a money plan for next month. Circle the date, highlight it, and draw stars all around. Because this marks the first day of the rest of your life!
When that day comes, set aside an hour to create your first budget. Turn off Netflix, avoid social media, and set up shop somewhere comfy. Have a bowl of ice cream or a snack, play some upbeat music in the background, and have fun as you get to work!
2. Put everything in the right place. A funny thing happens when we organize our budget: We help ourselves and get the chance to help others in the process. But it’s all about the approach. We recommend giving before saving, and saving before spending. After all, if you approach your budget based on spending first, you may not have any extra at the end of the month to reach long-term financial goals or to benefit a neighbor in need. Putting your budget in order is the best way to stop paycheck-to-paycheck living.
3. Aim for zero. Sounds weird, right? Usually when it comes to money, more is better. That’s true here, too. We want you to earn more, give more, save more, and do more with what you have. But when you create your monthly budget, shoot to have nothing left over at the end of the month.
Start with your income at the top and work your way down, allotting money for giving and saving, followed by expenses and other monthly payments (like credit card bills and car payments). You may find you have lots of money left over at the end of every month or perhaps you’ll come up a little short. Just reevaluate your plan and make adjustments as needed until you reach the golden goose egg of zero.
4. Consider all income. Yes, every penny. If this part sounds cut and dry, it’s because it is! Take a moment to run through your income sources: your regular paycheck, money from any side jobs, sales commissions, bonuses, cash for your birthday or Christmas, and the list goes on.
Write down each source of income and add them all up. For your regular paycheck, it’s helpful to note how often you get paid—once a month, weekly, biweekly—and on what day(s) those paychecks arrive during the month.
5. Remember every expense. Begin with normal recurring charges—think mortgage or rent payment, utilities, cell phone and TV bills. List your subscriptions and memberships, as well as regular family expenses. You should include clothes, food, gas, etc.
Be sure to recall all the sneaky stuff, too, like one-time events happening only next month and once-a-year expenses requiring more time to save. We’re talking baby showers and weekend getaways for the former and Christmas, birthdays, back-to-school shopping or even an unexpected car repair for the latter—things that put some families in a tough spot.¹ But not you! Because you’re on a budget!
5 Ways to Fine-Tune Your Budget
Now that you’ve made your budget, let’s fine-tune it so you can get the most out of it. With a few tweaks, your monthly budget might just perform a song and dance. Then you, with all your hard work done, can sit back and enjoy the show.
1. Make room for fun. Pause for a second. Are you breathing? Pinch your skin. Did you feel that? Okay, it’s official—you’re human! That means you need a little fun in your life. Not when you get out of debt. Not when you retire. Not even when you finally agree to give cilantro another try. But today!
When you’re on a budget, you need to plan for fun. If you’re in debt, maybe fun looks like a walk through Target’s One Spot to grab a single dollar item. Or you could partake in a hobby or enjoy a nice meal out with friends. Even lovers of spontaneity are covered! Assign a reasonable chunk of cash to spend however and wherever you please. The point is to alleviate guilt and keep the crazy spending in check.
2. Track your spending. A budget serves you best when you follow it. You can stay on mission by monitoring your behaviors. Whenever you swipe your debit card, hand over cash, or—wait for it—sign a check, make note of the transaction. By staying aware of your habits, you can track your progress and learn what works and what doesn’t work as the month moves along.² For instance, when you find yourself with one week remaining and only $10 for dining out, you know it’s time to make friends with your kitchen and a cookbook.
Make the process extra easy by using the EveryDollar Plus budgeting app. EveryDollar Plus enters the transactions for you by connecting directly to your bank account. Just drag, drop and you’re done!
3. Make yourself accountable. To really stack the deck, you’ll need a friend on your side. Talking budgets with a like-minded pal will encourage you both to be creative with your income and also challenge you to stick to the plan.
Couples bring built-in accountability to the table. So take advantage! You can also ask a parent, close friend or sibling to partner up with you on this new adventure. Whatever your situation, chat regularly about your spending and be sure to review the budget together before each month begins.
4. Get pumped. Is this part necessary? You bet your bottom dollar it is. Motivation keeps your eyes on the prize. And, funnily enough, motivation is the prize. Why do you want to create a monthly budget? In the answer you find both your reason and your reward. Your motivation, if you will.
Jot down what motivates you and place it in a prominent spot in your home. That way you won’t have to dig deep for motivation whenever you feel tempted to stray from the budget. Update your answer from month to month and keep the good vibes going!
5. Jump in with both feet. Straddling the line between budget-lover and budget-snubber won’t get you far on the road to reaching your goals. So do yourself a favor and go all in!
Of course, there’s grace to be found in the learning curve. And we’re all human, right? We’ve proved that already. What we’re talking about here is commitment. A decision made up front that no matter what happens—circumstances outside of our control or our own slipups—we’ll get back up every single time. Every monthly budget you create offers a new opportunity to choose commitment all over again.
Make Budgeting Easier with EveryDollar
Now you know what it takes to create a solid budget from scratch. The good news is that while your first monthly budget may have you hunkered down at the table for a bit, by the third or fourth month you’ll feel like a seasoned pro. What once required an hour of your time will one day only take minutes.
Even better? EveryDollar automates the process for you. With suggested categories in an orderly fashion that roll over from month to month, you simply make adjustments as needed. And with the app on multiple devices, the budget is always by your side, making it a snap to update along the way.
We all want to do more with what we have. Wherever you are on your journey with money, we invite you to the Better-with-a-Budget Challenge.
It’s simple, really: Give budgeting a chance by conducting a trial run. For the next three months, take control of your money. Make a plan and stick to it. Have a little fun along the way but keep your priorities in check. See where the process takes you. We have no doubt you’ll be pleasantly surprised.