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When most people hear the word "budget" they do something somewhere between a cringe and a deep eye roll. Budgets are no fun! They're so restrictive! I live in the now! Can I borrow $5?
Having a budget doesn't mean you never have fun and only eat mustard sandwiches. Having a budget means you have a plan for your money and how to spend it.
Do you work hard and wonder why you don't have anything to show for it? Would you like to save up for something awesome but you're not sure you can afford it? Do you often exchange money for goods or services? If yes, then you absolutely will benefit from a budget.
A wise man said that having a budget is "telling your money where to go so you don't wonder where it all went." Doesn't that sound nice? The brilliant simplicity of a budget is that it doesn't restrict your spending; it guides your spending towards your goals. You put your money where your mouth is.
To get started you'll need to record your spending for the past month. Dump all the receipts out of your purse, pull up your bank statement, review your Venmo transactions, whatever — you'll need to make a list of every dollar you spent however you spent it.
You can make a spreadsheet or use a management app like Mint, but really? A pen and paper can be your most powerful tools. There are lots of great budgeting worksheets available online. Let google be your guide. Or here's one I designed!
Putting ink to paper and actually making yourself write down that you spent $38 on burritos in May can be a real eye-opening experience. It makes you so much more accountable and aware of the process. However you decide to do it, just get it all out there. Write absolutely everything down. And when you make your list, be sure to include your savings.
As you go through your transactions, you might be surprised at what you've spent. This is a great time to really evaluate your goals. If you'd like to save more money to establish a safety net, then make it so! Make a line item and make the effort. Save whatever you can this month towards that goal. Essentially, what you want to ask yourself is, Is my lifestyle in line with my priorities? If you spent $50 on margaritas while complaining about how broke you are, you might need to change up a few things.
Now take a look at your incoming funds for the past month. List your net income and any other money you received.
(A note on budgeting if your income is tips- or hustle-based: For an irregular or unpredictable income, there are a few things you can do. Try basing your current month's spending on your previous month's earnings. You could also average out your past year's income to a single monthly figure. I think the most effective tactic to plan for an irregular income is to list your obligations in order of priority. When you do get paid, go down the list and take care of what you can. All the good stuff's at the bottom of the list, and you can skip it if you need to. No fun, but at least you have the lights on!)
Subtract the expenses from the income. If you have money left over, great! Now you can get use it to save for a goal or pay down debt. Nothing left? Not so great! But that's OK — you can adjust your spending to make the numbers work out. Here's how:
Take a look at everything you spent. Did you buy lunch at work a lot? Commit to brown-bagging it two or three days a week. Did you take an Uber when you could have walked or used the train? Are your buying magazines and paying to stream movies you could easily get for free at the library? You don't have to deprive yourself, but you may need to be more mindful of your choices in the future.
If you cannot make the numbers work or you've already cut back as much as you can, then you'll need to look at supplementing your income. What can you do to make extra money? Pick up another job? Sell your stuff? Get a roommate? It might suck, but not as much as being broke all the time.
Once you get it balanced, it's time to put your plan into action. For beginners, the envelope method is tops. Just split all your money into envelopes for each category and leave your cards at home. When the money is gone, it's gone! Despite my best efforts, I tend to overspend at the grocery store. Typically, I pull my allotted amount of cash for the month and leave my debit card at home when I food shop, but I use my debit card for most everything else. If you pay your credit card off every month (you should!) and belong to a great rewards program, you could charge all of your expenses. Whatever works for you — you know yourself and your habits best.
Going through the first month with your new budget, you will need to make some changes. And that's fine; nothing is set in stone. When you wrote your financial plan you may have put aside $100 for your car inspection, but now you need new tires, too. It will probably take a few months to work out the kinks. But because you have everything mapped out you can clearly see what needs to go. (It's usually new clothes, sorry to tell you.)
Putting a budget in place means you have a plan for your money. When you have a plan for your money, you are in charge of it. Put more towards the things that are important to you! Staying on top of your finances allows you the luxury of making decisions instead of being forced into them because of circumstances.