Creating a budget that actually works can be a challenge.
Have you ever put time and effort into your perfect budget, convinced that THIS time, it will be “the one?” Every single category is accounted for. Every bill is covered. You have dotted your i’s and crossed your t’s.
It is a glorious feeling, isn’t it?
Until the next month, when something comes up that doesn’t perfectly line up with your dream budget. Baby showers, wedding gifts, birthday celebrations, car trouble.
You name it, it’s comin’ for ya.
When I first got serious with budgeting, these little things completely derailed me. It seemed as soon as I was in a good rhythm, life threw something at me just to keep me on my toes.
Like those little jack-in-the-boxes we all loved as a kid. You know what’s coming. You are watching for it, waiting for it. But POP! That dang little weasel catches you off guard. Every. Single. Time.
Tire blew? Pop.
Air conditioning unit went out? Pop.
Kids needed an X-ray when they fell off the swing? Pop.
After years and years of practice and patience and tweaking and refining, I have found a few simple steps that will help you create a budget that actually works. Every month. Even the ones that throw you a curveball.
Here are the 8 steps that will help you create a budget that actually works!
Step 1 – Know your need for a budget. How will a budget help you?
Most people are intentional with every other aspect of their lives. We intentionally set an alarm clock so we will wake up for work the next day. We intentionally go to the grocery store so we will have food to cook for our families. We intentionally invest time and effort into our relationships so they will continue to grow. So, why is it that we struggle with being intentional in using our money?
We need to have a plan for our money, or the month will end and we will have nothing to show for it. It is great to dream about our futures. But those dreams will never be goals until we write them down. And those goals will never be met until make a plan.
A budget helps you be intentional with your money. It allows you the freedom to choose what your priorities are. A budget is a plan that helps your money work for you, instead of the other way around.
Step 2 – Know your month. What is coming up that will need to be added to your budget?
When my husband and I were paying off our debt (you can click here to read about our journey to financial freedom), I read anything and everything about finances to stay motivated. I read a TON of books on budgeting.
There was one little nugget I read that was a total lightbulb moment for me. It wasn’t earth-shattering. But it was something I had never even considered. And I had a complete shift in my perspective.
“A budget will change every month.” And it’s true. It will look different based on the needs that are specific for that month. #mindblown
I was always in the “set a budget and bend over backwards to honor that budget no matter the cost” camp. Now I realize that while most categories stay the same, sometimes things come up and that’s okay. A budget is meant to be adjusted.
Not blown. But adjusted. Tweaked. Revised. On purpose. Probably every month.
At the beginning of every month, I look at everything that will be paid out that month. Normal bills, groceries, etc. But I also think about oil changes, birthday parties, wedding gifts.
My budget morphed into a living, breathing thing that changes a little here and there. On purpose.
The freedom in this has been amazing. I no longer feel guilty because I forgot to save for a specific category, like gifts. If something comes up, I buy it that month as needed. If not, that much extra goes to savings.
I would venture to say that this is the number one thing that has helped me to create a budget that works every single month. It might look a little different month to month, but it works!
Step 3 – Know your numbers. What is your income and outgo every single month?
You might have a general idea about how much is in your bank account or how much you make each month, but maybe you don’t know the exact numbers. In order to make any financial progress, or set and stick to a budgeted plan for your money, you have to fix this! You should know exactly how much comes in, and exactly how much goes out.
Look at paystubs to figure out your monthly income. Not just how much you think you make, but how much you actually bring home with each paycheck. Look at the cold, hard facts. Know the number you make every month!
Look at your outgo. How much are you paying in bills every month? Hopefully, the amount coming in each month is higher than the amount that is going out. If not, something has to change.
If you are spending more than you are earning, at some point that is going to catch up to you. And it’s not going to be pretty.
Manage well, live well. If you don’t manage well, no amount of money will bring the peace you are looking for.
Step 4 – Know your categories. Where are you consistently spending your money?
For the most part, your money should be going to the same bills every month. Mortgage/rent, water, electricity, cable, internet, groceries, gas, fun money/entertainment, eating out, clothing, auto repair/maintenance, savings, debt, etc.
Write how much money you have coming in. Take a look at your fixed expenses, those expenses that stay the same month after month and aren’t likely to change anytime soon. Write them all down, subtracting their cost from the amount of money you started with to figure out how much you will have left.
Once all of the fixed expenses are written down, look at the variable expenses. What are things you KNOW will come out? Does your husband need a new suit for work? Is there a birthday party you know will be coming up this month? Any school expenses that will need to be paid this month?
Once you know what HAS to be paid, you should have a good idea of what is left over. Use your leftover funds, if there are any, to beef up your savings, pay off debt, or bless other families who maybe aren’t as fortunate as you.
Step 5 – Know your outline. What is your basic plan for your money this month?
Make an outline for the month. Have a plan for all of those hard-earned dollar bills. Before you get your paycheck, know where it is going and what your goal is. That way as soon as you are paid, you can use every dollar wisely and have enough for each of your budget areas.
Some people get fancy shmancy and use spreadsheets or software programs to allocate their spending. I am kind of old-fashioned in that I prefer a plain ol’ notebook. I print out all of my budgeting forms from the Simple Finance Toolkit and stick them in my binder. They help me stay organized in my finances, and I stay on track with my payments. (P.S. The Simple Finance Toolkit is free to my subscribers. Interested? Check out the little box at the bottom of this post.)
Step 6 – Know your roll (of cash, that is). Is there a category you blow almost every month? Could cash be an option to help you stay on target?
Okay, hear me out on this one. Many people tense up as soon as I say the word “cash.” And maybe a cash budget isn’t for everyone. BUT I will say everyone should at least try it. You can make a cash budget work based on your needs and personal preferences, and if you are serious about getting in control of your finances, a cash budget is a great way to get started. At least for a short time.
When we were first learning the self-discipline of sticking to a budget, we used cash for almost every category. Chances are, if we didn’t pay it with online bill pay, we paid for it with cash.
Now, we only use cash for our budget categories that tend to be budget busters for us. Clothes, eating out, and fun money are all things that we budget with cash. We used to use cash for groceries as well, but lately Clicklist is legit a life changer and omg how did I ever survive without it??
The thing about using cash is once it’s gone, it’s gone. There is literally no way to overspend! If you are interested but don’t want to jump right in, just pick one budget category that has been a struggle for you. Commit to using cash for this one category for two or three months.
I can guarantee you will be more mindful of your money, and spend less than you normally do in this category.
Step 7 – Know your current status. How much money do you still have any given day?
Get in the habit of checking your bank account every day or two. This literally takes 45 seconds total.
By checking my account every day, I know right away if an unexpected expense leaves my account less than I thought it should be. It also gives me peace of mind in knowing what is there so I can be a better steward of what God has entrusted to our family. Those 45 seconds are such a great investment!
When you are more aware of how much money is left, and what bills still need to come out before your next payday, it is much easier to say no to that extra Starbucks or Target trip. (My Monthly Payment Tracker in the Simple Finance Toolkit is a great resource for tracking what bills still need to be paid each month. This really helps me know at a glance how much is available for extras.)
Step 8 – Know your why. What are your financial goals? What dreams are you working towards?
Do you want to stop using credit and always live below your means? Do you want to eventually be debt free? Do you want to beef up your emergency fund? Is there a specific thing you want to save for – a more reliable vehicle, a down payment on a house, college for the kiddos? Do you want to invest more for retirement?
I love crunching numbers, I love budgets, I love making progress on our financial goals. But that doesn’t mean I love the sacrifice that is sometimes required in sticking to the budget I’ve set.
For the months that are really tight, it is so important that you know WHY you are sticking to a budget, WHY you might be sacrificing. It makes the harder months oh-so-worth it!
Think about your family’s financial dreams!! What are the goals that will help you get there? (Again, there is a great resource in the Simple Finance Toolkit for this! The “Our Financial Goals” planning sheet will help you put pen to paper and turn your financial dreams into actionable goals!)
When you know what goal you are working towards, and you have a realistic budget that takes into account all of your needs each month, it is easy to set a budget that you can stick to. By knowing your numbers, living below your means, and using a cash budget to help reign in your spending, you will start to see progress right away.
By tweaking your budget based on the needs of that specific month, you will be more motivated to stick to your budget. And the more you stick to your budget, the more you will reach your financial goals little by little.
What is one thing that has been a challenge for you with budgeting? Do you have any words of advice for others who might be struggling with setting a realistic budget that actually works?
P.S. My Simple Finance Toolkit is filled with free finance printables that will help you set goals, outline your budget each month, and track your progress. If this is something you are interested in, just enter your email in the little box below and I’ll shoot you a link to download your freebies!