How to Create and Stick to a Budget

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In the last blog, we showed you how to make an extra $1,000 for the holiday’s-20 ways. Now that you have a few ways to earn extra money, we are going to show you how to create and stick to a budget.

When most people hear the word budget they probably feel a little nauseous. Then they turn defensive and think, “there goes all the fun!”

While a budget is a disciplined way to track where your money is going and how you spend, it does not have to mean the end of all this that are good in life. If you are living paycheck to paycheck, or even worse, using credit cards to bridge the gap between paychecks, you are definitely in need of a budget. We’ll follow up with a post on credit cards, but living off credit cards is not the way!

Once you learn how to create and stick to a budget, you’ll wonder why the hell you ever lived paycheck to paycheck.

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How to get started creating a budget?

There are many ways to get started creating a budget, and many tools you can use for your budget.

For starters, you can download the Nothing Common Abouts Cents Budget here. Feel free to customize our budget or you create your own using Google Sheets or Microsoft Excel. I’ll admit, I’m a bit of a spreadsheet junkie and enjoy making and playing with spreadsheets.

Another options would be to use software such as Quicken, which is relatively easy to use and you can link your bank accounts directly to the software to track your spending. Quicken starts at just over $31 a month.

There are also several apps you can use to PocketGuard, Mint (brought to you by the same people as Quicken), and HoneyDue.

Here are a couple great articles by Millennial Money on budgeting software and NerdWallet on finance apps if you want to do some more research.

Having the Right Mindset

If you do not go into budgeting with the right state of mind, your budget will fail! Guaranteed!

Sticking to a budget, saving money and investing in your future will improve your quality of life, almost immediately, and for evermore. A budget is a positive thing and you need to think of it as a positive change in your life.

Once you and your budget are best friends, you will be on the path to your best life. Your best life now, not when you are too old to enjoy it.

A budget is an essential part of planning for the future all the major events in your life. Buying your first house, a new car, a wedding, or a baby on the way are all easy with a well thought out and maintained budget.

Wait and see how quickly your budget turns into a positive when you see your savings account growing for that purchase you’ve been eager to make. When you are able to use those credit cards for your benefit, not as a means of survival, which often turns into buried in a mountain of debt, you will recognize the power of your budget!

Are you getting excited to learn how to create and stick to a budget yet? You should be!

What is a Budget?

A budget is an estimate of your income and expenses over a certain period of time.

Sounds easy, right?

It is. A budget just tracks what is coming in and going out in terms of money.

If you use a debit card or credit card (ideally paying it off every month in full) for your purchase and bills it will be really easy to create a budget, because you can go back over the last couple of months and track your spending. If you are use mostly cash it will be a little more work but not impossible.

How to Create Your Budget

Hopefully, by now you’ve decided where and how you will start your budget. If you’ve download the Nothing Common About Cents budget from above it’s mostly fill in the blanks.

Income

The best place to start in your budget is income. If you income is set, your paychecks are more or less the same each month, then this makes it easy.

If your income varies, you are in sales and make commissions or a server or bartender and make tips, this can be a bit more challenging. There are a couple of ways to go about adding in your income. Whichever is the most conservative is the path I would choose.

You can take your annual income from the previous year and divide by twelve and call it good. This will work for those who’s sales or tips are pretty consistent month over month. If your work is more seasonal in nature, then follow the seasonal patterns, skewing higher during the traditionally busier times and lower during slower periods. Both approaches are pretty straight forward and should bring you to a good starting point. You can always adjust as you get more data in your budget.

Expenses

There are two types of fixed and variable.

Fixed expenses are things like your rent or mortgage, car payment, student loan payments, etc. Items where the payments are the same every month. These tend to be the largest expenses in a persons budget.

Variable payments are items where the amount you pay each month changes. These items are harder to budget for, because of the variable nature of them, and include things such as unforeseen expenses, car repairs, groceries, entertainment and the like.

The more you can budget for the variable expenses with some realistic amounts the stronger and more accurate your budget will be. One great starting point is groceries and dining out. If you are anything like me, these expenses can quickly balloon out of control and double or triple on a monthly basis!

Variable Expenses to Fixed Expenses?

If you can budget say $600 a month for food, all food, groceries and dining out, and stick to it, you’ll be much better off. The months where these expenses fly to the moon will really kill your budget. But again, if you’re anything like me, food and beverages are a huge part of what makes me happy in life, so budget and plan accordingly and you’ll be more successful and happier.

Also, if you set aside money for the unexpected each and every month, knowing damn well your car is not going to break down at the expense of $100 each and every month, you will be better prepared when the eventuality of that breakdown or blowout occurs. Same goes for medical expenses.

I treat these variable expenses like going to a casino. If I go to a casino I walk in with a budget that I will not be upset if I lose, say $400, and when the $400 is gone, I am done. I walk out and go home. Same thing with variable expenses, at least the nonemergency kind. If my budget for dining out is $200 and I blow the whole $200 on one meal, I am done for the month. Home cook meals until the next month rolls around.

Okay, enough about the different expenses.

Like I mentioned above, if you spend primarily on debit or credit cards it will be relatively painless to go back over the past few months, see where you are spending money and plug your expenses into your budget.

If you are a cash only user, it is probably easier to write down where you are spending money over a day, week, or month and plug those expenses into your budget. You can always adjust your budget moving forward.

Income and Expenses, but What About the Fun

Okay, so you’re off to a great start. You have a basic budget of what you bring in the door every month in income, and what goes out every month in expenses, but what does it mean. And what should my budget look like.

There are many different methods for budgeting. AtypicalFinance lists a few of them in a great blog post if you want to read more about them.

A common method is Balanced Money Formula. 50% of your budget goes to your needs, 30% to your wants and 20% to savings. Of course, if you are of the F.I.R.E (Financially Independent Retire Early) crowd you can flip these percentages around.

Methods of Budgeting

Which method of budgeting and how much goes into each budget will largely be independent and depend on your own situation, so some honesty with yourself, your goals, and commitment to improving your financial well-being will be necessary.

It makes sense to focus on paying off high interest debt first, regardless of which budgeting method you are using. It doesn’t really make a ton of sense to have $20 grand sitting in a savings account with the current interest rates near 0%, when you have $100,000 in student loans @ 7% interest and $15k in credit card debt @ 29% interest.

Yes, it is important to have a rainy day or emergency fund. How much, is up to you to decide.

I Make Minimum Wage, How do I Create and Stick to a Budget

Easy, create a budget and live within your means.

When I was in my twenties I mostly worked as a server or sommelier in fine dining restaurants. I was making pretty good money. Most of it was paid in cash, and I never had any money in my pocket. Nor in my bank account.

After a while I needed a change. A friend of mine asked me to quick my job and help her in the pastry department in another restaurant. Log story short, I went from making just shy of of seventy-thousand a year to minimum wage. I had no savings when I started working in the kitchen and save more money over the next nine months of working in the kitchen than I did the previous five years as a server.

How?

Easy, I knew I was making minimum wage and was forced to be frugal. I stopped spending all my money in bars and went home most nights directly after work. Dinner became home cooked meals and not take or delivery.

Latest fashion trends went by the wayside and I wore jeans and t-shirts.

I simply lived within my means, and you can do it too.

The key is, to cut out the extra’s but to make sure you are still allotting a budget for fun. Obviously, 30% for wants or fun when you are making minimum wage is likely not possible. Still budget a smaller amount for fun and look for budget friendly things to enjoy. Walks or hiking, visiting pet stores, find free days at the museum, go to the beach are all great entertainment. Whatever you’re into, you can find some manner of fun.

You can also turn your fun into an extra source of income. Love dogs, become a dog walker. Enjoy reading, become an editor. The possibilities are endless. If you’d like to see another post on these side gigs, let us know in the comments below.

Regardless of your income and budget have fun.

How to Make Your Budget Fun

If saving up for the down payment on your house, or paying off debt isn’t making your budget fun; then find other ways to make it fun.

Challenge a sibling or friend to a savings contest. Or see who can be debt free first? Come up with little goals in your budget that you can accomplish in a short amount of time. This will allow to see progress rapidly.

We live in an instant gratification world. Social media, cell phones and the internet, so feed into that with your budget. Micro goals to keep the excitement coming.

What other ways can you make budgeting fun, post your ideas in the comments below.

When the inevitable happens – “No”

There will be a time in your budget has been tapped and the funds are dry until next month. Your best friend will say, “Let’s go to Vegas!” Okay, it may not be Vegas in your case. However, someone will approach you to do something you just can’t afford at the time.

Of course, you can always loan yourself the budget from next month to have fun now. This is a slipper slope and will kill your budget! You’ll be playing catch up until the point your budget is in the circular recycling bin on your desktop.

Be responsible, be disciplined and take the hard road now to live your best life sooner than later.

Happy Budgeting!

Please reach out with any questions or comments. We love the interaction with our readers!