The word budget might make you cringe or send you to the nearest store to spend while you still can. Because once you have a budget, you’re never going to be allowed to spend money ever again, right? Actually, that couldn’t be further from the truth! A budget gives you permission to spend, it just keeps you from going overboard. If you’ve never budgeted before and have no idea what you’re doing, fear not. It might seem complicated but it’s actually very simple.
The key is to make a zero based budget, which means that every dollar you make within a given month is given a purpose to fulfill and you will end the month with zero money leftover (after putting any extra money toward debt or savings). The basic equation is Income – Expenses = 0.
Income
Income means the total money you take home after taxes and other deductions have been taken out of your paycheck. It’s the dollar amount that is deposited into your bank account. Income also includes any other money you bring in from side jobs, selling items, or anything else.
Expenses
All expenses fit into 2 categories – Fixed Expenses and Variable Expenses. Fixed expenses refer to monthly bills, subscriptions, anything that is due or charged to your account that is the same dollar amount each month (like your rent, car payment, or Netflix). Variable expenses vary month to month and have some flexibility in terms of dollar amount (like groceries, gas, or clothing).
Writing Out Your First Budget
Let’s walk through the budgeting process step by step. Grab a piece of paper, a pencil, and login to your bank account. Better yet, you can download my free budget worksheet which is included at the bottom of this post.
- At the very top of the page write down the word Income, and underneath it write down all the paychecks your household will receive this month as well as any other income.
- Next, on the left side of the page, write down the words Fixed Expenses. Begin listing all your bills. Take a look at your bank account online if you need help remembering them all.
- Then on the right side of the page, write down the words Variable Expenses. Look at what you’ve spent on average for food, gas, clothing, etc. over the last months and list those expenses.
- Take your total income, subtract your total Fixed Expenses and your total Variable Expenses. If you have any money leftover, it should be used to either make an extra payment toward your debt, put into savings, or put into sinking funds. Sinking funds are money you save each month to go toward expenses you know are coming up later, such as Christmas, car maintenance, home repairs, etc.
If you don’t have any money leftover and the number you ended up with is in the negative, don’t panic. This just means you need to increase your income or decrease your expenses, preferably both.
A budget gives you permission to spend. Click To TweetWake Up Call
Have you ever looked at your expenses that closely? Did you have any idea that you were spending so much of your income each month? I was surprised too when I sat down to do a budget for the first time ever. It was a huge wake up call for me, especially when it came to restaurant and grocery expenses. Now that you know what you’ve been spending it will be a little easier for you to figure out where you can cut back. Can you reduce your beauty or entertainment expenses by $100? Are you really using that gym membership or can you cancel it? Can you DoorDash less and cook more? Every dollar you can save will help you pay off your debt or build up your savings that much faster!
You get to decide what to prioritize
I’m not asking you to quit everything cold turkey and never buy Starbucks or go out for girls night again. If you cut every unnecessary expense out of your life it will be difficult to keep it going long term. Instead, what a budget does is help you look at how much income you have coming in, what expenses are absolutely necessary, and then you get to decide how you’re going to spend whatever money you have leftover.
If there’s a special event coming up that will cost money to attend, put it in the budget. If it’s been forever since you’ve had a date night and you’d really like to go to the movies, put it in the budget. Then when you spend that money you won’t feel guilty because you’ve given yourself permission to spend it. If you have very little or no money leftover then you will have to do without those extras until next month. Having a budget helps you figure out what to prioritize and gives you a plan for your month.
Chances are you are not going to stick to it exactly. A budget is not set in stone, it’s a living, breathing document. You might spend a little more than you thought on groceries this month, but maybe you spent less than you budgeted for the electric bill. It’s never going to go precisely the way you planned, but as long as you’re following the plan you will be so much better off and you will know exactly where all your money went.
Free budget worksheet
I want to help you create your first budget, so I created a free budget worksheet for you! It will provide you with some guidance and it even has areas where you can write down your goals for the month as well as lessons learned to keep in mind for the following month. If you have any questions please feel free to leave a comment or contact me directly. A budget is so key to getting on the path to financial freedom, and I want to help you out in any way I can. I’m sure once you get into the habit of having a monthly budget, you’ll wonder how you ever lived without one!