Budgeting For Dummies – The Ultimate Guide on Creating a Budget You’ll Actually Stick With
Budgeting for dummies. Ugh. I cringe while saying that.
Why? Well, because you’re NOT a dummy.
This headline is designed to get you here so I can tell you just that.
Your previous, unsuccessful attempts at budgeting may make you think you’re a dummy, but that’s not it at all.
You just had the wrong information. You didn’t get the entire story.
Budgeting is much more than throwing some numbers on a spreadsheet or using the “cash envelope system”.
Your budget needs to be built around your life and your goals. It needs to have a purpose.
Also, if you want to avoid this financial stress for good, consider investing in my course Budgeting For Budget Haters. Not only will you get access to the 4+ hours of instructional videos, but you’ll also get access to my full library of custom financial worksheets, my monthly financial newspaper, and MUCH more.
Why You Need a Budget
Let me get this out of the way early: as a financial coach, I believe a budget should be used by everyone.
They’re not just for “those people in debt” or “someone who spends too much”.
Whether you make $25,000 per year or $250,000 per year, you can overspend in either circumstance.
But knowing how your income is going to be spent BEFORE you spend it is crucial.
Your budget is going to be the backbone of your financial life. It’s your roadmap to financial freedom.
If you continue through life without that roadmap, it’ll be easy to veer off course and lose sight of your goals. That’s why budgeting is so important.
Now let’s go over what’s holding you back.
And the kind of budget I’m referring to doesn’t cut out the fun stuff (unless you’re having TOO much fun!) and/or require you to collect paper receipts. Sweet!
The Lies You’re Telling Yourself About Budgeting
I meet with over 400 individuals and families each year to talk about money. As you can imagine, budgeting comes up quite often.
That conversation is usually met with some resistance and often leads to excuses as to why they don’t need a budget.
But as you’ve already read, EVERYONE needs a budget. Including you. So let’s take a look at a few of those excuses and debunk the conspiracy theories.
“It’s Going to Require Too Much of My (Already Limited) Time”
I’ll be upfront with you by saying that yes, this process is going to take time.
But my question to you is, how can you afford NOT to commit time to your finances?
There are only a few things that will affect you over your entire lifetime. Money is one of them.
You need to spend the time to better understand your financial position and plan for how you’d like to use your money for the goals you’d like to achieve.
Don’t think you have time? You do. It’s all about priorities. Make sure money is close to the top of your list.
“Things Will Be Fine Once I Make More Money”
While most people don’t usually say this out loud, I think it’s the most common response.
There’s the misconception that if you’re living paycheck-to-paycheck, once more money comes in, you’ll get the breathing room you need. Your expenses will still be the same, right? Wrong!
Unfortunately, there just isn’t any evidence that says more money makes managing it easier. The stress will never truly go away.
But if you have an understanding of your financial position, you’ll know what to do with that additional income when it starts rolling in.
If you don’t gain control of your money today, you’ll probably just spend more as your income goes up.
“I’ve Done Well So Far and Have No Debt”
It’s great that you’re debt-free, but if your goal is to REMAIN debt-free, you should really have a budget.
In fact, you may be just a small financial emergency away from being in debt again.
And if you remember from earlier, a budget also helps you stay on the right track so you can achieve financial freedom.
How to Prepare a Budget You’ll Stick With
I wish I could tell you that creating your budget is super easy and we could jump into it right away.
Unfortunately, that’s not the case.
Before creating your budget, there are several things you need to do in order to create one you’re actually going to stick with.
If you neglect to do these things, you’re going to be caught in an unending loop.
You’ll consistently fail at budgeting and will be left wondering what went wrong.
So with that in mind, let’s go over some important steps to help you create your budget.
Assemble The Decision Makers
If you’re single, that’s you. Please move on to the next action. 🙂
If you’re in a relationship, it’s time to grab your significant other.
Budgeting is a new family tradition in your house.
Why? Well, for many families a budget may not stick due to someone feeling left out.
For example, if I created a budget that completely disallowed my wife from spending, she would hate that budget to the core. It would fail miserably.
Therefore, it’s extremely important that a budget is created by all those involved in the spending. I’m not kidding. Go grab them before continuing.
It’s About Goals
Before you start budgeting, you need to know what the heck you’re budgeting for, right?
That’s why you need to set financial goals first.
The most important goal on your list should be achieving your definition of financial freedom. In other words, if money wasn’t an issue, what would you do?
That goal is an extremely important one to have.
Because when you fall off the budgeting wagon, this one goal will be what makes you want to jump right back on. It’s what keeps you going.
In addition to that goal, you need to define your other goals so you can make sure you’re accomplishing everything that’s needed.
Want to pay off debt? Make it a goal.
Want to go on that special vacation? Make it happen.
Having goals increases your chance of success dramatically. That’s why I make them priority number one.
When you’ve got your goals in place, keep constant reminders of them around the house.
Know What You’re Working With
Before you can create a budget you’ll stick with, you need to know what you’re working with.
What am I talking about here?
Well, for instance, you need to know what bills you have and how often you need to pay them.
You also need to know how you’re currently spending money. This will help you determine what you should be budgeting. It’s amazing how more likely you are to stick with your budget if you know what to actually budget.
You should also determine your net worth so you can track your progress towards your goals.
Now I know all of that sounds like a lot of work, but you’ll dramatically increase your odds of success by doing it all.
Start Big By Using Annual Numbers
What’s that you say? Has no one ever given you the advice to start big?
Well in this article I am. I want you to create an annual budget before a monthly one.
Taking your budget and expanding it over 12 months can be truly eye opening.
Not only will you see how much you’re earning and spending, you’ll also see how much you’ll be able to save or apply to debt repayment over that time period. Talk about motivation!
This process will also help you to start planning for larger expenses several months ahead of time.
Spend about $1,200 around the holidays and find yourself adding to your credit card debt every time? Use the annual budget to start planning ahead.
To learn how to create your annual budget, visit this article.
When finished, be sure to print it out. You need to have it out every time you work on your monthly budget. It’s your guide!
Budget In The Fun Stuff
In your annual budget, did you remember to budget for some fun items to keep your sanity?
No? Well, get on that. You have my permission!
By budgeting in the fun stuff (entertainment, dining out, etc.) you’re more likely to stick to your budget.
You won’t feel as “shackled down” like you would with a more stringent budget. You’re more likely to stick with it.
You also want to budget for “fun money”. This is a category in your budget that’s classified as guilt-free spending. You can utilize it for anything!
It could be $10 or $100. Whatever works for your budget.
Please note that budgeting your hard-earned money in these so-called “fun” categories will most certainly slow down your ability to save and/or pay down debt. But if you think about it, are you more likely to stick with your budget if you give yourself a little freedom? I bet you are.
Make It Monthly
When you created your annual budget earlier, you did most of the difficult work.
Monthly budgeting will be all about making sure you’re on track with what you projected.
When tracking your monthly budget, you can do it the easy way, or the hard way.
Let’s start with the easy way.
It’s an online based program where you can connect all of your accounts in one place. This makes it super easy for tracking and updating your monthly budget.
Now, I get fairly detailed with my clients on the setup of the program. I’m not going to get into that here, but if you’d like more detail on YNAB including how to set it up based on everything you’re learning here, I recommend purchasing my course Budgeting For Budget Haters.
In the course, I specifically show you how to set up YNAB, create specific categories, prioritize your income based on your goals, and use it to pay off debt or save as fast as possible. All of those lessons are videos of me actually using the program. It’s a great way to get the information you need in the right order.
Now, let’s go over the hard way.
You can certainly create your monthly budget with pencil and paper or by using a spreadsheet program like Excel.
Just know that it’s going to be much harder to track since you’ll be entering in information by hand.
If you’d like to budget this way, I’ve created a few monthly worksheets to help you get started.
There’s a budget if you’re still paying off debt and there’s one if you’re out of debt and focusing on major financial goals.
These worksheets will calculate totals for you automatically. You want to keep an eye on these numbers as they will tell you if you are over budget.
As I mentioned earlier, use the numbers from your annual budget as your guide when using the monthly budget.
Tweak It Until It Works
I’ll be honest. Your first budget is going to look like complete and utter CRAP.
There’s no doubt about it.
And you know what? That’s OK.
Learn from the issues and tweak your budgeted amounts for the next month.
If you thought you could budget $400 for groceries but ended up spending $500 and had no food waste, well maybe $500 is the new number. Just go back to your annual budget and make the necessary changes.
However, if you know you are still overspending in a category, start working on ways to reduce your spending.
Review and Automate
As I mentioned above, budgeting is the new norm in your house.
You should be reviewing your budget every few days and in more detail at the end of each month.
Did the numbers work out to what you budgeted? Can you reduce them even further next month? Reviewing helps you answer those questions.
Over time, budgeting is going to get a lot easier.
The budgeted numbers are going to become like second nature.
As you get more comfortable budgeting, you may want to start automating your expenses.
Put some (or all) of your fixed expenses on autopilot and just sit back and monitor.
Sticking With Your Budget
Now even if you’re extremely focused, budgets can be hard to stick with.
It’s easy to veer off the budget and just try to “work harder next month”. I’ve been there myself!
If that happens, you just need to dust yourself off, make adjustments and get back on the path. Think about achieving financial freedom and it’ll be easy.
Your budget will NEVER be perfect. There isn’t a person on earth that could convince me theirs is.
Once you realize this, it will be much easier for you to roll with the punches.
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You should now have all of the tools to create a successful and motivational budget. If you still need that extra push, consider joining the Budgeting For Budget Haters course. In addition to the step-by-step guidance, you also get access to our private forum where you can find yourself a budget buddy. 🙂