Creating a budget is one of the easiest and most convenient ways to manage your money.
When you know how you’re spending money, you’re more conscious of the things you purchase and you put more into savings. It’s a win-win for you and your financial future.
It gets better. Once you have a budget and you follow it for a few months, you’ll naturally start spending your money with intention. You won’t feel out of control. You might even get excited about checking your budget (I do, even though I used to hate budgeting).
Let’s get started on creating your perfect budget.
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Find your why
Let’s be real here. Creating a budget doesn’t sound fun. What’s your reason for wanting to change the way you handle your finances?
Maybe your goal is to:
- Pay off your student loans early so you can live debt-free
- Save $20,000 for a down payment on a dream home
- Start investing so you can live comfortably in retirement
My why was feeling physically ill from not saving money even though I knew I could. I looked around and saw clothes and random things I bought that I didn’t need (or even really want!) and was wondering why I wasn’t saving any money.
I want to have multiple six-figures in investments by the time I’m 30. That’s my why and it’s a massive goal but also incredibly motivating to stick to a budget.
Calculate monthly income after taxes
One of the first steps to take when creating your budget is finding the total amount you take home each month.
For example, you may have 2 paychecks coming in at $1000 each after tax. Your take-home pay is $2,000. You may have a side hustle that earns you an extra $500 a month after tax.
All of your bills and expenses must be under $2,500. Knowing this total amount is going to help you see where you need to cut spending so you can start saving more. Every dollar helps.
Track all spending
This is the most time-intensive step because you have to track all of your spending for 1 month, but you can do it. Or you can opt to look over the previous month and put all of your spending into categories to see how much you’re spending.
Gather your bank and credit card statements (either paper statements or online) and put each purchase/expense into a category.
Here are popular categories you will want in your budget:
- Housing (mortgage/rent, HOA fees, property taxes)
- Utilities (electricity, water, garbage, phone, internet, cable)
- Transportation (car payment, insurance, maintenance, gas)
- Food (groceries, restaurant)
- Medical (insurance, primary care, dental, medications)
- Insurance (health, home/renters, auto, life, disability)
- Household (toiletries, laundry/kitchen supplies)
- Personal (gym memberships, haircuts)
- Debt (student loans, auto loans, credit cards)
- Retirement (financial planning, investing)
- Fun money (subscriptions, concerts, movies, vacations)
A recommended budget percentage to follow is:
- Housing: under 25%
- Utilities: 5-10%
- Groceries and dining out: 10-15%
- Transportation: 10%
- Health: Under 10%
- Insurance: Under 25%
- Fun: 10-20%
- Charity: 5-10%
Lower expenses and spending
Once you’ve tracked all your spending and put your expenses into categories, you may be surprised to see you’re overspending in quite a few areas.
This is great news because it means you can start saving money ASAP by eliminating certain purchases and being more intentional with your spending.
Here are my favorite ways to lower expenses:
- Cut your cell phone bill in half by switching to Tello. Tello plans start at $5 and the highest plan being $39. You can cancel or upgrade your phone plan any time you want and keep your existing number. I only need the $19/month Tello plan which gives unlimited text and calling, with 4GB of data.
- Billshark is a MUST for anyone who has a cell phone, cable, internet, or insurance bill and wants to lower their bill. I saved $290. Billshark has a team of negotiators who call bill companies on your behalf to try and lower your bills (ex. T-Mobile, Spectrum, etc.). All you do is send in copies of your bills to Billshark and they start the negotiation process (it’s quick). You can start lowering your bills with Billshark here.
- Cashback on groceries with Ibotta. Ibotta is a free app that gives you cash back for making purchases on things like groceries, clothes, toiletries, and much more, which can all be very helpful when traveling. Click here for a $20 welcome bonus.
- Honey helps you find the best discount codes online. I went shopping online the other day and pressed my Honey extension button. Honey found me a 40% off coupon. Honey’s free for you to use and is a must if you shop online. Sign up with Honey here.
- $5 Meal Plan is a meal planning service that sends you a delicious meal plan and shopping list every single week for just $5 a month. Get your free $5 Meal Plan 14-day trial here.
Read more: 30 Money Hacks To Save $1,000 Per Month
P.S. Sign up below for the FREE ultimate financial planner that includes printables like: debt tracker, income tracker, annual budget summary, savings challenges, financial goals, and debt thermometers!
Increase income with extra hours, new job, or side hustle
There’s only so much money you can save. Which is why this step is especially important. Once you’ve done what you can to lower your expenses and cut out unnecessary spending, it’s time to find ways to earn more money.
Here are great ways to earn more money:
- Sell Etsy Printables. Julie from the blog Millennial Boss is killin’ it in the side hustle world by selling Etsy printables. This side hustle is almost entirely passive, meaning you do the work in one sitting, and then get paid for it for months and years to come. With just a few hours of work, Julie’s made over $5,000 selling printables on Etsy. Julie recently created Etsy Printables where she shows you exactly how to make money selling Etsy Printables. This free guide here has a secret list of best-selling products by month and how to capitalize on seasonal trends to make sales. It’s a free download and SO good!
- Freelance writing. There are hundreds of freelance writing jobs out there, but getting those freelance jobs isn’t easy, which is why Holly created Earn More Writing. Earn More Writing helped me get started in the freelance writing field. I went from charging $50 to $250 per article and now, I know I can charge much more than that with my writing experience. This work from home opportunity is legit, lucrative, and lets you work anywhere in the world. Holly travels (a ton!) and works all around the world. You can check out her course and free workshop here.
- Surveys. Filling out surveys to make money is an easy way to make money by simply providing your opinion to questions. Here are some survey companies: Swagbucks, MySoapBox, Opinion Outpost, MyPoints ($5 bonus after 5 surveys).
- Facebook Ad Manager. Did you know you can become a Facebook Ad Manager for businesses and make an extra $1,000+ a month with just 1 client? Facebook Ad Managers are in charge of running ads for businesses to increase their customer base and income. In short terms, Facebook Ads can really help businesses grow. You can learn how to become a Facebook Ads Manager in less than 28 days with the Facebook Side Hustle Course.
You can find more ways to earn more money here: 50+ Ways To Make Extra Money
Test out different budgeting methods
There are so many budgeting methods out there. You’ll hate certain methods and you’ll love others.
Popular budgeting methods include budgeting apps, planners, printables, spreadsheets, and cash envelopes.
Budgeting apps are my go-to method for budgeting. I’ve tried every budgeting method on this list and apps are the most convenient, but may cost more money.
I use the premium version of EveryDollar (there’s also a free version), but I find it worth it because it has no ads, I can drag and drop expenses into custom categories, get access to a budgeting course (FPU), and a lot more.
Here’s a list of the most popular budgeting apps:
Using a budget planner is great for anyone who likes to stay organized and use pen and paper. If you’re already a fan of planners, budget planners will naturally work for you.
Using budget printables is similar to using a budget planner, only it may be more affordable. Many printable budget planners are free or incredibly affordable, making them a great option for budgeters. You can print out printables at home, the library, or at FedEx. FedEx gives you the option to print it on a higher-quality paper.
If you know how to use Excel, you may want to create your own budgeting spreadsheets. My boyfriend created his own Excel spreadsheet and that’s his method of budgeting and he loves it.
My friends at Pennies To Wealth created a budget spreadsheet that you can use again and again for under $10.
My friend Marissa from The Budgeting Wife also has a budget spreadsheet. I bought this (not to use, but support her business) and it looks great and super easy to use. Again, I’m more of an app drag and drop person, which is why I don’t use spreadsheets, but you may love them.
Using cash envelopes is great for anyone who wants to use actual cash instead of their credit or debit card. If you find that you overspend when you use plastic and prefer to physically hand over cash, cash envelopes are for you.
You can also check out this helpful article: 7 Clever Ways To Stick To Your Budget
Check in with your budget at least once a week
Just like any habit, you need to create a routine and check in at least once a week. Find a day and time that works best for you.
I personally find that checking in with my budget every 3 days keeps me totally up to date on my spending and helps me see where I’m at with spending. You may think that’s overkill. If so, check in once a week.
Maybe for you that will be Monday at 7PM when you’re relaxed on the couch watching Netflix.
Perfecting the system
Sticking to your budget and perfecting the system may take a few months. It did for me. I went gung-ho on my budget in the beginning and thought budgeting would make me this person who spends $0 on the fun stuff.
Nooooo way. Now I have a fun category in my spending and it’s given me so much freedom.
You may find that you don’t necessarily like going to restaurants as much as you do, and you can lower your restaurant spending category.
Or you may find that you actually enjoy all the subscriptions you’re paying for.
Don’t beat yourself up in the beginning if you don’t follow your budget. This is normal and it’s part of the process. You’re not yet used to spending intentionally, but you will get there.
Quick tips to stick to your budget:
- Plan your next month’s budget ahead of time (Plan for February in January).
- Find your preferred method of budgeting (is it via budgeting app, spreadsheet, planner, or printable?)
- Use Unroll.me to unsubscribe from emails that encourage you to spend
- Read a personal finance book
- Set up automatic payments for recurring bills – for these bills, upload them into your budget on the 1st of the month (ex. mortgage/rent, cable, subscriptions, internet, cell phone, etc., any bills that are the same amount each month)
Creating and sticking to a budget isn’t as hard as you think. In the beginning, budgeting is the toughest because you’re not used to it. It’s not a habit yet. You’ll make mistakes and go over budget – that’s okay!
Sometimes people get too strict with their spending and set their budget super low and then beat themselves up when they don’t follow the budget. The first few months of budgeting will need some tweaking.
You can do this. A budget is giving you permission to spend money on things you enjoy instead of wondering if you have any money to spend. It might not be sexy, but it works!
If you want to take it a step further, download my free 7-Point Money Checklist to clean up your finances today.
Do you have a budget?
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