How to Budget in 2019: The Simple Guide To Track Your Money
Do you ever find yourself running low on funds at the end of the month?
Learning how to budget will give you the control to tell your money where to go every single month.
Budget is a word that often comes with negative connotations and the feeling of restriction.
That’s actually the opposite of what a budget does!
A realistic and balanced budget is simply a spending plan. You decide what you want to spend your money on and when you want to spend it. Then you stick to the plan.
Think about how it would feel if you had $100 left at the end of the month and the freedom to use it to do whatever you want!
It’s your decision on what you spend your money on. As long as you are able to afford it. Your budget is your roadmap to answer what you can afford.
Need a tool to start a budget? Download EveryDollar it’s FREE and really easy to use.
What Is A Monthly Budget?
A monthly budget is nothing more than a plan for your money each month. Sound simple?! It is!
Each month you have money coming in and you have money going out. A budget is what will show you exactly how much you have coming in and going out, and it will tell you where your money needs to go.
When you create your budget you need to make a list of the money you have coming in. Examples are your salary, side hustle income, child support, interest etc.
Next, you will need to make a list of all of your expenses. This can get a little tricky because expenses can vary. Be realistic when making a list of your expenses. Mortgage or rent, utilities, debt payments, food, etc. are all expenses to factor in.
Budgeting gives you the ability to see the flow of your money and adjust the flow if needed to allow you to work towards your financial goals.
Does A Monthly Budget Really Work?
100% yes a monthly budget really does work. That said, it’s important to remember creating a habit takes time and following a budget is no exception.
It will take time to adjust to following a budget and allowing it to guide you on what you can spend and where to spend it. Be realistic with yourself.
If you typically spend $500 a month at the grocery store putting in your budget that you’ll spend $250 isn’t realistic. You can save money at the grocery store but, you aren’t going to cut your monthly expense in half.
Variable expenses are those that fluctuate each month and in order to forecast a realistic amount for your budget, you can take the average of the last 3 months. This will give you a realistic amount to list in your budget. If you want to be conservative you can also take the highest amount from the last 3 months and use that in your budget.
A budget is only as successful as the numbers used to create it. So your numbers need to be honest and you have to stick to them. If you have $1000 for food that month, don’t go over that amount. Following your budget will accomplish your financial goals and reduce the stress caused by your finances.
What Is The Importance Of A Monthly Budget?
Financial goals are something we all need and a budget is important because it’s the vehicle that will help you achieve those goals. For so many people money brings a negative feeling and it truly doesn’t have to be that way.
A budget allows you to take control of your money. Money won’t buy you happiness but, it will buy you the freedom to do what makes you happy.
I’m not talking about material items although there’s nothing wrong with that. I’m talking the freedom to change jobs or start a business doing what you love. The ability to buy the home you’ve always wanted for your family. Whatever your financial goals are, putting a budget in place is an important part of being successful in achieving them.
For me, budgeting is a way of life. I used budgeting to pay off over $100k of debt and continue to use it to pay off my remaining debt while simultaneously saving for retirement and furniture for our new house. As you can see budgeting is personal, it will help you achieve what you want.
Keeping track of your money allows you to account for every dollar and not waste money on things that you don’t need.
No clue where your money is going every month? It’s most likely going to random expenses that do nothing but, set you back from achieving your goals.
Types Of Budgets
There are quite a few different budgets out there, but for the purpose of this post, I’ll stick to the two most popular. The 50/20/30 rule budget and zero-sum budget. Don’t get overwhelmed with budget options, just pick one and stick with it.
50/20/30 budget – as the name hints you divide your spending into percentages, 50%, 20% and 30%.
50% is for your fixed essential expenses – fixed meaning the expenses do not change each month. We’re talking mortgage, rent, car payment, insurance, etc.
20% is for your savings – or if you are paying off debt then allocate 20% towards your loans or credit cards. Any other long terms financial goals that you are working towards fall into this category.
30% is for the variable expenses that you have each month – so the expenses that aren’t the same each month. Think gas, groceries, tolls, etc.
When you use the 50/20/30 budget after you have paid for your fixed items which tend to be essentials and made your savings or debt payments then it’s your job to fit everything else work into the 30% portion of your budget.
You will have to be careful with what you are spending on variable items including non-essential items. For example, gas is an essential item but, if you’ve spent too much on non-essential items you may not have any money left to fuel up again at the end of the month.
Be very aware of what you are spending and when or you could find yourself short on funds at the end of the month.
The zero-sum budget is just as the name hints. You will allocate all of your money so that you are left with $0 at the end of the month.
This type of budget doesn’t leave any money sitting in your account for the just in case or whatever you want. I quite frankly like this for anyone learning how to budget and people who tend to spend money on stuff they don’t need or even really want if money is sitting in their account.
The zero-sum budget will allow you to allocate every dollar. All of your bills will be accounted for, your savings, and money for doing what you want. For example, if you know you want $200 for eating out then you put that specific amount into your budget. It’s a more matter of fact type of budget and when you’re first starting out that can be very helpful.
What Makes A Budget Hard To Stick With?
A budget is hard to stick with if it’s something that hasn’t yet become a habit. Like I mentioned earlier in this article, a budget like anything else has to become a habit and that doesn’t happen overnight. Also mentioned is budgets can often come with negative connotations and feelings when that really isn’t the case. Budgets do not have to be restricting.
Budgets require being totally honest with yourself. Odds are if you’re reading about budgets you know you are overspending on stuff you don’t need or even really want. You just have to teach yourself how to change your habits and eliminate that problem.
In comes your budget to save the day! Budgeting shouldn’t be the lone ranger in your quest to take control of your finances. It’s a team effort and things such as using apps to save money at the grocery store, no spend days, and earning more money in your spare time can all help too.
Simply put budgeting helps you control and track where your money is going. It isn’t going to make you immune to life throwing you lemons. Life happens whether you’re planning for it or not. That said, when you are budgeting it’s a lot easier to handle the lemons.
With savings or an emergency fund in place, you are better prepared to handle an unexpected car repair bill or a broken AC. Both would require immediate attention and could quickly sabotage your budget.
Allocating funds each month for an emergency is always a wise financial decision that will help you stick to your budget month after month.
Setting money aside for sinking funds is another way to stick to your budget. You know when your friend’s birthday rolls around or it’s time to drop a chunk of money on Christmas gifts? Yep, those are sinking funds.
They happen every year and factoring them into your expenses each month is helpful because you’ll already have the money set aside. Imagine how great it will feel when Christmas rolls around and you’ve got a nice little pile of money to pay for gifts? No stress!
Half the battle of sticking to your budget is being prepared and these tips will help you. When you have the opportunity to save throughout the year rather than getting hit with additional expenses all in one month.
Can I Budget If I’m Terrible With Money?
I honestly don’t believe that anyone is terrible with money. You might make terrible decisions with your money and that can be changed. Managing your money is a skill and just like other skills, it’s a matter of learning how to make the best financial decisions for your money. You can absolutely budget even if you think you’re terrible with money.
Thoughts become things – think about a positive outcome with your money. This is no time to doubt yourself, you can follow a budget and it will help you take control of your finances.
Think to yourself or even write down that you GET to budget. Not that you have to budget.
What is your why?
Your why needs to be the reason that will power you to stick to your budget. It needs to be that one thing that helps you repel the temptation to spend money on something that you haven’t accounted for in your budget.
Sure, you could stop at McDonald’s because you “deserve it” but, before you do think about the impact spending $10 has on your why.
When you follow your budget it will be the roadmap of where you want your money to go and that translates to what you find important. Working towards leaving your job to start a business you’ve always wanted to have? Screw getting that fast food and stick to the long term plan.
Think about it in digestible bites – if sticking to your budget for one day meant being able to leave the job you hate or buy the home you’ve always wanted would you do it? Of course!
Where Can I Get Tools For Monthly Budgeting?
We all start somewhere and it can be overwhelming when you’re learning a new skill.
When you start budgeting you can go really old school and use a pen and paper – nothing wrong with that! If you prefer other options there are plenty to choose from. There’s no right or wrong tool to use, it’s what works best for you.
1. Budget Templates
If you aren’t sure where I start I recommend using a budget template. There are some great ones out there. Personally like The Frugal Fanatics monthly budget template. It’s not only comprehensive with tons of categories for real-life expenses it’s also FREE.
If you’re new to budgeting a template is a great starting point. Just print it off, complete it, and follow it each month. You’ll be a budgeting boss in no time.
If you’re an Excel lover or even a guru this one is for you. I fall into this category, it’s simple and easy to customize. You can create your own budget spreadsheets that are completely personalized to your finances.
I’ve used this tool for years and while there are certainly move advanced ways to budget this works like a charm. Have a change in expenses? Need to save more? Easy to adjust!
EveryDollar is a free budgeting app that has been created by financial guru Dave Ramsey.
Two pros about this app, it’s FREE, and it will help you look at your budget and track your money throughout the month. I really like that you do not have to connect your bank accounts if you don’t want too.
Which leads me to a couple of other tools you’ll see recommended quite a bit that I just can’t get behind. Mint and Personal Capital. While both are free to sign up for and have robust systems to track your finances there’s too much sales hype that comes with them.
I’m also not the trusting kind and using a website to link every bank account I have to track my net worth makes me nervous. What if they get hacked? Nope, not for me. By all means, if you’re comfortable with that use the online trackers. Just promise me you won’t buy into the sales hype that comes with them.
How To Budget In 5 Easy Steps
- Commit To Honor And Stick To Your Monthly Budget
- Identify Your Monthly Income
- Identify Your Monthly Expenses
- Review And Adjust As Needed
- Wash, Rinse, And Repeat
1. Commit To Honor And Stick To Your Monthly Budget
You know the saying no two days are the same? Well, no two months are either when it comes to your budget. Income and expenses can change from month to month. You will have to create a new budget every month, it’s a hands-on activity and a living document.
Review your budget throughout the month, you will see the progress that you are making.
The third week of every month, sit down and create your budget for the following month. Sure, a lot of information will be the same as the current month but, there will be some that isn’t.
Your budget is your roadmap, it’s a tool that will assist you to achieve your financial goals.
2. Identify Your Monthly Income
Sit down and identify your monthly income. Things like your salary, interest, side hustles, or child support are all income. Your monthly income will vary from someone else’s, take the time to identify what you have coming in each month.
List the exact amount of money that is coming into your bank account. This is not the time for estimating.
3. Identify Your Monthly Expenses
Next, identify your monthly expenses. You may need to go back and look at your bank statements to make sure you don’t miss any expenses.
Things like your mortgage or rent, utilities, insurance, groceries, and entertainment are all expenses.
This is not an all-inclusive list and like income, expenses are unique to your personal spending.
Some of your expenses will be variable. For these look back at 3 months of bank statements and take an average of the highest number. Personally, I like to take the highest number so that I know my budget won’t be short.
Variable expenses require tracking throughout the month. For example, if you budgeted $500 for groceries and by the second week of the month have spent $400 you’re going to need to adjust accordingly without going over your budget.
Consistently keeping an eye on your budget will help you stay on track and not run out of money towards the end of the month.
Find yourself running short at the end of the month? Try these options for saving money on a tight budget.
4. Review And Adjust As Needed
Now that you have your income and expenses, how much is left over?
This money should go into the categories we talked about earlier. Emergency funds or sinking funds are the biggest that should be added to whenever possible.
Bills come first and must be paid but, once you accomplish that you can take your budget to the next step of planning for expenses that aren’t recurring every month yet are bound to come up.
5. Wash, Rinse, And Repeat
A budget is ongoing and needs attention. Make it a habit of looking at it at least once a week.
It doesn’t need to be an obsession but, does need to be something you are conscious of and review frequently. Doing so will keep you on track, following the plan you created and staying motivated to keep working towards your financial goals.
BONUS: Additional Budgeting Tips
Asses your monthly expenses and cut out things that you don’t need from your budget. Many people can free up $100’s of dollars just by focusing on needs vs. wants. You don’t need to buy your coffee or lunch every day!
Don’t make stupid money mistakes like going to the grocery store without a list or not meal planning before you create your grocery list. Your finances will thank you for your commitment and planning. If temptation is knocking remind yourself you’ve got bigger goals than whatever is calling your name to buy it. Stop and then ask yourself if buying something you don’t really need to worth setting you back financially.