In the past we’ve discussed why you need a budget.
We’ve also discussed how to derail your budget.
But we have not discussed HOW to make a budget. Probably should have done that first.
Whoops.
Here we are though, getting back on track and here to provide you with the practical tips on how to create a budget. This will be especially helpful if you are new to the world of budgeting or if you are trying to budget but end up confused and unable to keep up with it. I plan to post a lot of links to Dave Ramsey articles on this subject so you have more resources for motivation and inspiration.
So, how do you make a budget?
1. Income
First things first, you need to know your income so you can allocate it properly.
This includes things like paychecks, freelance work, child support, interest, birthday or holiday money, and side jobs. Any money that comes TO you is part of your monthly income to budget. It might be irregular and that is OK. It may be slightly trickier for you to gather up and predict your monthly income but it won’t be harder when it comes to the actual budgeting process.
Some of you get paid twice a month and will create a budget twice a month. Or however often you get paid you will make a budget for that payroll period until the next one.
For us, we only wanted to create a budget once a month. We simply combine paychecks from the 15th of the prior month with the paycheck on the 1st of the current month to create our new monthly budget. That way we have a month worth of income to meet a month worth of expenses.
2. Outflow
The next part is to know what your actual expenses are.
Who do you pay every month? How much is your rent? What do you have set up on auto withdraw you aren’t even aware of? Basically, where are you spending your money?
Knowing how and where you spend your money is vital to creating a budget since you know where you need to allocate funds.
3. Get a Head Start
In order to walk into February with a complete budget, you need to do some advance preparation. The last thing you want is to have an incomplete budget and to spend money un-tracked for several days before you get down to budgeting for the month. It derails the budget and defeats your overall goal.
For example, we are going to host a new budget link-up for the month of February. All you cool cats who create a February budget will have a chance to photograph your budgeting in action and upload it to our blog for accountability. Cool huh?
BUT in order to join in the fun, you will likely need to have spent time working your budget a few days in advance.
4. Host a Budget Committee Meeting
If you’re single, you are the only one who needs to be in attendance for this meeting. If you’re married, BOTH spouses must be present to agree on the written game-plan for the month.
To save time, I typically prepare the budget for what I think looks about right for the month. Then Jonathan and I have our meeting. We go over the budget together and he has the freedom to ask questions, insert changes, or propose a reallocation of funds. Then at the end of the meeting we review everything once more and verbally agree to it.
5. Zero-Based
This is the part I think people get confused about.
Many people feel successful if they budget out the month and then have extra left over. That means the budget wasn’t zero-based.
Zero-based budgeting means every dollar has a job. You want to assign all your money into a category, so that at the end of budgeting, you have no money left to allocate anywhere. It’s either working for you in savings, gas, groceries, tithe, etc. Money that doesn’t get a job will blow out of your hands fast!
This is where you want to have a budgeting tool for help as you create the zero-based budget. The most important things get funded first – food, lights, water, shelter, and basic transportation. Then you work your way down the list assigning money to various categories in the budget until you reach zero.
Whatever Baby Step you’re on will impact how you budget dramatically. Are you in the first two steps? Then your budget will be pretty bare bones and your goal is to get that “debt snowball” category as fat as possible. Perhaps you are in the middle baby steps, so you will likely be saving a lot of your monthly income and the reins will be looser in lifestyle categories. Or maybe you’re in Baby Step 7!! At that point you can do whatever you want with your budget since you literally owe no money to anyone, not even on your house.
6. Staying On Budget
This is where your budget will sink or swim.
You have to consult your budget and track your spending throughout the month. You can’t just create a pie in the sky budget on the first of the month and then let all hell break loose. You have to steer the ship or your lack thereof will steer you into financial ruin and perpetual disorganization.
Dave Ramsey has some simple tools to help with this. There are like a million budgeting apps you can download. We use YNAB – You Need a Budget and are absolutely in love with it. Budgeting has literally never been easier for us but we went months in our early days of doing pen and paper tracking with cash envelopes to build discipline into ourselves.
7. Roll With the Punches
In your first few budgets, you will learn that you grossly underfunded particular categories and overfunded others.
This is OK.
You have the ability to rework the budget during the month if that’s what needs to happen. You can assess that you won’t be using as much money over in gas for example so you can shift the extra over to groceries or the forgotten birthday gift for your brother.
Just don’t make a habit of this. Over time you should be getting better at making a budget so that eventually you will need to readjust next to never since you are a master at knowing your expenses and what you spend in particular months.
There you have it, friends. Some tips, tricks, and pointers on HOW to get budgeting!
Join us here at True Good and Beautiful at the beginning of February for our NEW budget link up!
Happy budgeting! 🙂
Photo for this post CC-BY-2.0 Jacob Edward. Filter, title, and logo added.