The Nuts and Bolts on How to Create a Successful Budget

Published on June 6, 2019 by Lauren

Having trouble getting started with a budget? Are you feeling like you are always trying to play catch-up with last month's expenses? Are you wondering how to create a successful budget? For so many years, I didn't budget. I was scared to… and honestly, it was because I didn't know how to do it.

I honestly tried to budget in the past and failed miserably. But once I finally figured out these four simple rules, my budget-following fortunes changed for the better.

Here are those four simple rules on how to create a successful budget:

  1. Except for emergencies, Do NOT spend more than you take in.
  2. Every month is different, so treat each month differently.
  3. PLAN each month before that month even begins.
  4. Read on for this one…

The third on that list was perhaps the most significant change to my budgeting success. In fact, rule #3 is what has allowed me to achieve success in rules #1 and #2. It was difficult and daunting at first; I remember asking – “How can I predict what next month's expenses are going to look like?”

I did go back and look at my previous month's bank statements to see how much I had been spending, but since my past spending habits were precisely what I wanted to change, I didn't dwell too much on the past. To be honest, it was depressing. I was ready for an immediate change.

And I think this is where I might differ somewhat from other budget-experts. Often, you might hear that you need to know and understand your past spending history in order to start budgeting. I can't speak for everyone's situation, but you can spend A LOT of time reviewing your past spending history, and while it might be eye-opening in some ways, it doesn't necessarily mean that you will change.

The fact is, you decided to start budgeting because you already know that your money has been going to the wrong places. You are ready for a change. And the bulk of your time would be better spent with some prospective planning, rather than retrospective discovery. When I began this process, I already knew that I was spending WAY too much going out to eat. Did it matter that I had been spending $300 a month or $250 a month? To me, not really.

Here's my shortcut – you know what your bills already are, so look back and tabulate just the following expenses for food and gas. I use my money saving budget planner, there are many benefits of using a budget planner. These are purchases that you've been making and will continue to make. You likely can't make a huge immediate change in these expenses, so your past history is a good starting point.

Much to my surprise, after spending about an hour thinking about finances and everything coming up in the following month, I came up with a pretty good estimate of what that month would look like. Many things are already “set in stone”, like bills, housing, etc. Most of my thoughts centered around things like:

  • When are my paychecks deposited?
  • How many birthdays do we have to buy presents for this month (I have LOTS of nieces, nephews, brothers, sisters etc.)
  • Do I need to change the oil in our cars, or get them inspected?
  • Are there any medical bills due?

Once I felt pretty good about our plan, we THEN went back and perused the past 2 months of spending online. This was only to look for things we might have missed. Things like a Netflix subscription, app-store purchases… those expenses that might be automated and could easily slip through the cracks.

Now for that rule #4… and this only applies to married folk – DECIDE YOUR BUDGET TOGETHER. When you agree to a budget, you are effectively agreeing how you plan to live your lives together – things you value as a family, what is important and what is not important. There will be give and take, but do not end your “budget meeting” until you have your pact – next month's budget.

Your first couple months of budgeting will probably suck. You will forget things, you will go way over budget in some categories, and you were probably overly optimistic. It's ok. It will take a few tries to get this process down. Just start and decide to stick with it!

Okay – Now for the steps:

1.) Know what your income is (or if you're self-employed, estimate the best you can).

Depending on how much cash you have available in your checking account, you will want to know when those paychecks will go in there.

2.) Plan expenses that you cannot readily change. 

Rent/Mortgage

Utilities

Insurance

Car payment

3.) Long-term goals.

Your budget should always have long-term goals mixed in with your short-term cash flow planning. Are you saving for an emergency fund? Getting out of debt or saving for retirement? These are all goals that you should be making monthly progress on.

4.) Large one-time or annual expenses.

These are those large expenses that you should be saving for on a monthly basis. For me, I have a emergency fund and a Christmas fund; and money is pulled directly out of my account. A great way to save for these items is by using Smarty Pig; their services make it SO easy to save for anything, from Christmas to a vacation.

5.) Talk about the coming month

This is your attempt to minimize unplanned expenses. Most of the time, I find that unforeseen costs can be caught and planned for ahead of time when I sit down and spend time thinking about it. What is unique about this month that will cause this month's budget to be more or less expensive?

Birthdays

Holiday meals

Trips to visit family/friends

Work need to be done on vehicles

6.) Budget for expenses that you do have some control over.

Here is where the bulk of the discussion during the budget night takes place. How much will you spend on food? How much will you spend on clothing? What about all those other little expenses?

For these types of expenses, I strongly recommend using cash. Green, physical paper money. I cannot tell you how helpful it has been for me to use cash. For me, I simply spend less money, and it just makes my life so much easier. I sell Cash Envelopes in my online store, you can find those here.

Here are the categories that I use cash for:

  • Groceries
  • Gifts (sometimes not… depends on deals that can be found online)
  • Fun – dates & family fun
  • Babysitter (they usually don't take debit card)
  • Miscellaneous expenses

7.) Stick to it! 

At least weekly, make sure to log into your account online and check to make sure that things are progressing as expected. If not, you might need to make adjustments. Any adjustments are better made sooner rather than later as mistakes have a way of compounding. In my budget tool, I have made it easy to check off items as they are posted to your bank account online, so that it is easy to see if you've missed anything or need to adjust.

8.) Unplanned expenses.

Being unable to account for unplanned expenses was one of the reasons that I never thought budgeting could work for me. Something ALWAYS comes up, right? Whether the car breaks down, you get an unexpected medical bill, one of your kids takes a trip to the emergency room, etc. Things happen outside of your control, and many of these things cost you lots of money. So how do you plan for these?

You don't. But because you have control and a plan for where your money is going, you can revisit your budget to figure out the best way to absorb the cost. These unplanned expenses are the primary reason why we recommend saving for an emergency fund. I cannot imagine the thought of dealing with an unplanned expense while not budgeting.

Here is a question that often comes up – how often does your spending go exactly as planned? Answer – not often. I usually get close, but it seems as though there's always something I overlooked; usually it is small.

So if we miss our budget target consistently, why do I go through this exercise? Because long-term, I will NOT miss. According to NASA, the difference between weather and climate is a measure of time.Weather is what conditions of the atmosphere are over a short period of time, and climate is how the atmosphere “behaves” over relatively long periods of time. Weather is erratic – there are a billion weatherman jokes for a reason – despite all of the state-of-the-art weather technology and years of schooling, the accuracy of weather forecasts can only be so good.

Ask a weatherman to predict the temperature 3 weeks out. He could easily be 20-30 degrees off, and forget trying to predict precipitation that far our. But climate is the average of all of those anomalies, and it is not erratic (please no global warming comments). The same applies to budgeting. I can't predict what will happen in the short term, but just by planning, talking and acting on the short term, my long-term trajectory is not erratic.

When you ask the question “how should I budget?”, you will get vastly different answers from many different people. I have simply share what I do, and it has worked very well for me… and admittedly, I don't naturally like to budget. I don't track every single penny that comes out of my pocket, but I know where my money is going because I tell it to go there.

Just start. As long as you decide to stick with it, you will do awesome.

Still need more information? Check out my YouTube Channel, here is my most recent video on How to Start a Budget that Actually Works.

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