What do you think of when you hear the word “budget?” Do you feel your cortisol (stress-hormone) rise and you shut down? Or do you feel comforted by the word, like a warm blanket around your shoulders? (Nerd alert: I feel comforted by a budget. Get me a budget and a hot chocolate, stat!) But for many people, budgets can feel scary, stressful, and like someone just called the fun police, here to take all your money from the things you want to spend it on.
I’m here to challenge that old idea that a budget should be boring and stressful and see if I can move you a bit closer to the cozy blanket feeling.
A budget can come in all kinds of shapes and sizes, can be simple or complicated, can be restrictive or expansive. But one thing that all budgets have in common is that, at their core, they are a plan for your money. Full stop. That is their purpose for existing. And they only work when their user approaches them with that idea of their utility.
So what does this plan for your money actually mean? A budget is a list of all your planned expenses and categories and how you will divide up your money to spend in the coming days, weeks, or months. That’s it. Its details are something that YOU, the user of the budget, get to decide.
What a budget is:
-a plan for how you will spend your money
-created by you, for you
-reflects your values, wants, and needs
-focused rather than restrictive
-guides your spending
What a budget is not:
-someone else’s ideas on how you should be spending your money
-a tool to beat yourself up with or measure your self worth against
-merely a list of what you spent money on
Here’s the cool thing about budgets, they come in all shapes and sizes. You may find that what works best for you is a simple spending system, like Jen Smith talks about in her book How To Pay Off Your Debt For Good, which is a budget where you pay your fixed bills at the beginning of the month and the rest just goes to cover your other spending without further detailed allocation. Perhaps you may crave more structure and direction with your finances and a detailed line by line budget and tracking every transaction works best for you, like I prefer to do using You Need A Budget software (yes that is my referral link, thank you for supporting this blog!). Wherever you land and whether you have 10 or 100 budget categories, the important thing is that you start somewhere and learn what works for you.
So how do you choose what budgeting method is right for you? Trial and error. You may know generally that you would prefer a simpler or more detailed budget, or maybe you know you would prefer software or an app over pen and paper. Start with that. But for making your first budget, start with pen and paper. Once you have the budget categories and amounts determined, then figure out what method you will use to track your spending.
I recommend that everyone start budgeting with basic categories and line items using an envelope or line item system. No, you don’t need envelopes. They are a metaphor that helps you envision putting your money into a category and taking money out of that category or envelope when you spend(unless you really like cash and envelopes, then by all means get envelopes). This method gives you good exposure and understanding of the nuances of your budget, your categories, your needs, and how you actually spend. If you try it and hate it, that’s fine. Scrap it and take the knowledge that you have gained from starting with it to better inform your next budget.
There are dozens of apps and software available that can help you track your spending if you would like. Or you can do it using an Excel (or Google Docs) spreadsheet. Or you can track it on paper or by writing down transactions on the back of your cash envelopes. But each of these is not usually making your budget, you make that. These are tools that take the numbers and categories that you have already identified and help you track your spending.
Proactive vs. Reactive
Budgets are built to be proactive, to guide your spending and inform your financial choices. The good thing is that YOU are the one choosing what path you need to guide your money down. Think about what you feel you need help with money-wise right now. Is it getting out of debt? Saving for emergencies? Planning for retirement? Maybe its just trying to get a handle on where those dollars are going because you swear you work too hard to be this broke.
Now, whatever that goal is, write it down. That is what your budget needs to be guiding you towards. Keep it in mind when crafting your budget and when making choices as to how you spend. That goal is you being proactive. That is you budgeting and saying, “This. This is what I am gonna do with my money.”
Next, go on and write that budget that can help you move toward that goal.
How do you actually write a budget?
Decision fatigue is a real thing and anyone who has tried to decide how much money they should budget for the month knows what I’m talking about. It can be so overwhelming to make these choices because they choices are literally endless. So let’s start with some simple things that have already been decided. (Sure everything is subject to change eventually but for now, let’s just leave these as they are).
Write your income at the top of a page (or spreadsheet, or budget software, pick your poison). This should be all income that you have to pay your bills for the month, including your spouse’s (if you have a joint budget). It could be your paychecks that you earn in that coming month, or it could be from a previous month. Ideally, you will be able to move toward budgeting a month ahead but for now just start with whatever paychecks you are allocating for the month, whenever they are earned. Also make sure to include any other sources of income from side hustles, alimony, reimbursements, investments, etc.
Now, let’s start making budget line items and subtract each line item from your income.
Start with your fixed expenses. These are your monthly bills that you have to pay every month. You know they are coming and you know what they will be, even if they may waver a little every month. Add in these numbers and subtract them from your total income. These are things like your rent or mortgage, cell phone bill, electricity, water, cable TV, internet, streaming services, gym membership, newspaper subscription, credit card payments, loan payments, car note, insurance, etc.
The next category is necessity variable expenses. These are things you need to buy every month but its not a set bill or the amount changes a bit each month. And by need I mean actual need. You need to buy things like groceries, gas, pet food, medical appointment co-pays, prescriptions, school fees and materials, etc.
Next add in non-necessity variable expenses. These are things that you can live without if you already ran out of money with the two previous categories. This can be subscription boxes, swimming lessons, art classes, money for entertainment and events, restaurants, coffee shops, pretty much anything else you spend money on each month. Sure, these are things that may make life seem worth living but if you can’t pay for them you can still live.
Now, there are a HUGE amount of other budget categories that may flit between non-necessity and necessity month to month. These may be things like beauty, clothing, household items, etc. Most months you don’t need to fund a clothing budget and likely live with plenty of clothing in your closet that fits you and works for your life and seasons. But, there will come a day when you find that you actually have a need to replace those black flats you wear daily to work or your kid outgrows their winter coat and now its a necessity to fund that clothing budget. This is why a budget is so unique to each person and why they change month to month. Feel free to make the clothing budget a necessary expense for that month in that case and make sure its funded before other non-necessary expenses.
The next budget category is for savings and sinking funds. An emergency fund and sinking funds will save your butt time and again. They certainly have for me. Some expenses are true emergencies that you had no idea would come (hello hurricane deductible when we needed a new roof after Hurricane Ida blew threw) and others are costs that come up occasionally but you know generally will come. Sinking funds are money set aside to pay for those occasional costs, whether they are an annual payment for your Amazon Prime subscription or money you set aside each month to cover the wear and tear on your car and inevitable purchases for repairs and new tires. And setting aside some money every month to fill up an emergency fund will ensure you’ve got cash on hand when you need it most.
What if you run out of money before you get through all your expense categories?
Well, that’s why we list our expenses in our budgets from most necessary to least necessary. The goal is to be intentional with our spending. The last thing anyone wants is to find that they don’t have any money left to pay for their prescription because they accidentally spent it on pumpkin spice lattes. It sounds silly when you correlate purchases like that, but its true. Every purchase we make reduces our ability to make other purchases. In some instances, you can return a purchase when buyer’s remorse kicks in and you realize that you didn’t have the money allocated for that budget category. But most often money can slip through our fingers accidentally in consumable or non-refundable ways. So, being intentional is key. After all, what you spend on reflects your priorities, so make sure your budget aligns with your priorities and points you toward spending choices that support those priorities. If you cannot fund even your most basic necessities, then you likely have an income shortage (so look for side hustles, ask for a raise, anything to increase your income) or you have fixed expenses that are too high and you should look for a cheaper apartment, refinance your car to a better rate, look to lower your insurance by switching carriers, etc.
A note on Restrictive Budgets
If you want to make your budget restrictive, you can. Maybe you have some serious financial goals you are pursuing and you have decided to allocate a lot of your money to those goals and restrict other spending severely. Maybe you figured out that 6 months of little to no spending on “extras” can make you debt free.
Maybe you just calculated how much money you have coming in and compared it to your costs of living and you don’t have much room to breathe. Maybe you don’t have much wiggle room in your budget but, like a favorite pair of pants that are a little tight now but you still love them, you have decided to leave it tight so you can keep some favorite spending items. It’s okay to agree that you will live on a tight budget because spending on private school tuition or a personal trainer is very important to you and so you are willing to sacrifice elsewhere.
Or maybe you just don’t make enough money to afford your living costs so you struggle to make ends meet. In that case, you can decide to make cuts to your budget where possible or look for a way to increase your income, like with a side hustle or a promotion. If your costs are already cut down and you still don’t find much wiggle room, definitely lean into that side hustle and seeking long term changes to increase your income and pursue your career goals. Maybe you are only living with this tight budget for now because you (or your partner) is in school, you are working to get out of debt (which sucks now but can seem like a major raise when your money is back to being yours again), or you are facing another temporary financial impediment which is has a timetable for eventual completion.
There are a million budgets for each person’s situation.
There are many reasons your budget might be tight, but they all have a reason behind them. A tight budget isn’t to punish you. Rather, its a reflection of your personal financial situation and goals. Consider these scenarios:
- You may make a good income but have a lot of payments you make each month toward debt, kid’s swimming lessons, daycare, so your budget is tight because you decided to continue to do all the things because kids are damn expensive but also need to learn water safety skills.
- Maybe you have a lower-end income and struggle to pay your electric bill each month so your budget is very sparse yet still tight.
- Perhaps you are very aggressively moving forward in your debt payoff journey and have intentionally created a restrictive budget to cut spending from other categories so you can throw as much money as possible at your debt each month.
The solutions to lessening the tightness in each of these budgets are different as well. For the first, you could cut some spending on items you consider less important so you can have some breathing room and money going into savings. For the second scenario, if your budget is already gaunt prospector tight and you are struggling to pay your bills, then you probably have an income problem and/or a fixed living expenses problem which might mean you need a new job, a side hustle, a cheaper place to live, or all of the above. And in the third, a super restrictive debt payoff budget can eventually burn you out so if you feel yourself nearing that burnout I suggest you loosen your grip a little and give yourself some money each month to do something enjoyable like dining out at a favorite restaurant or going to the movies. No need for a huge splurge, but cutting very unnecessary dollar can lead to a boring life which can lead to an overcorrection and spending spree.
Whatever type of budget you have, restrictive or loose, detailed line by line tracking or loose categories, you get to choose what your budget looks like. You get to choose the type, the categories, and the amounts in each category. You get to choose how you will track your spending. You get to choose how much money to allocate to cigars, coffee, or takeout each month. You get to make those decisions. Sure, there are some good targets to shoot for and ideally you want to be able to afford your bills, have some money for fun and comfort, and sock a little away for the future. But first, just start where you’re at.
If you are new to budgeting, just start by making the categories, dividing up your income and deciding how much should go into each category, then track your spending to see if you can follow your plan. And recalibrate next month to shift your spending to better meet your goals. Attempting to use a budget to reinvent yourself and your spending habits overnight will only backfire. Work with yourself and your habits, make small stick-to-it-able changes, and go from there.