How to Make a Budget: 7 Simple Mind-Blowing Tips

Are you wondering how to make a budget? If you’re like most, you might realize that while you need to do it, but perhaps you don’t know where to start. Indeed, as Hirsch Serman from Lifecycle Financial states, “ it’s unfortunate that in our society we teach our children to iron a shirt, cook, and change a tire, however, we do not seem to teach them how to manage their finances.

In general, many people whose financial life is out of control to have other aspects of their lives that are out of control. I once published research that showed people who lost a lot of weight saw their wealth climb. When asked about this startling finding, my response is that dieting doesn’t make you richer. Instead, people who can shed a lot of weight typically got their life together in a variety of ways, which, as a by-product, led to better finances.

Jay Zagorsky, Senior Lecturer at Boston University Questrom School of Business

Budgeting is one of the most important aspects of a healthy financial house. In this article, we asked the experts to find out precisely the very best ways to create, be successful at starting a budget. Let’s dig in!

Start Now, or Don’t Start At All

Furthermore, Leah Bourne from The Money Manual agrees, “The first thing would be to sit down and do one, to begin with. This is not something to put off, and actually putting together a budget can make all of the difference when it comes to managing your finances well.”

Having a budgeting plan allows you to be 100 percent in control of your money. A budgeting plan will help you organize your finances and track all of your financial goals. Having a budget ensures that you always have money put aside for the things that you need and are most important to you. A budget allows you to avoid getting into debt so that you don’t have to file for bankruptcy in the future. If you are already in debt a budgeting plan can help you get out of debt so that you can be financially independent.

Karra L. Kingston, Esq.

Track Your Income & Expenses

“Once you know what you’re spending your money on, the next step is to look for opportunities to reduce what you are spending on each item in your budget. Every little bit extra helps with increasing your savings or paying off any debt, and to begin with you are going to be able to reduce your expenses by cutting any fat faster than you are going to be able to increase your income.” Nick Drewe, WeThrift.com

Further, Brittany and Kelan Kline from The Savvy Couple didn’t have the model of what a successful budget looks like and how it functions. Over time they had to grow and learn all about personal finance and it would have been beneficial to do that before starting college. With how much technology is at our fingertips, there is no reason not to be financially literate in 2020.

Apps and Spreadsheets: Some ways to track expenses

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Thinking about your budget isn’t enough. You need to put pen to paper or in this case, use a budgeting spreadsheet that honestly tracks your input and output. Although budgeting apps weren’t available when I was in my early twenties if they were I would tell myself to download one immediately. I’d even go as far as to say it’s worth paying for premium features that send you notifications when you are reaching spending limits in certain categories.

Anna Caldwell, Accredited Debt Relief

Personally, my favorite way to start and continue updating my budget is to use a Google Sheets spreadsheet. However, that may not be everyone’s cup of tea. Jordan Verroi from CapGenius seems to agree and says he built out an Excel spreadsheet that helped him immensely. Verroi goes on to say that he finds it very helpful to be able to see each year broken down by month and then by category.

Brian Martucci from Money Crashers suggests “ use an app like Mint or one of its reputable alternatives. It’s much, much easier to keep track of your finances in a user-friendly mobile app than a multi-sheet Excel file (unless you’re into that).

However, Chris Brenchley from Surehand warns “It might be hard at first accounting for every single thing, but once you get a hang of it, it works wonders. You soon begin to realize where all your hard-earned money goes towards and maybe you can then identify the unnecessary spending that causes your wealth to diminish.”

Trendy tech and budgeting apps aside, Stefan Smulders, CEO of Expandi.io says “if you really want to start a budget you need to go back to budgeting fundamentals, learning to separate your core wants and needs in order to really save money.”

Your budget isn’t set in stone, but rather a “live” document that is subject to changes depending on your goals, financial situation, and increases in fixed expenses that you can’t control. Don’t stick to something that isn’t working for you. Review your budget regularly to make sure you’re on track and that it is tailored to your financial situation.

Lindsay Sacknoff, Head of Consumer Deposit and Payment Products at TD Bank

When looking for a budgeting app, Shaquana Watson-Harkness from Dollars Makes Cents offers “ Some of the key features that are very useful when you first start budgeting is linking the financial app to your financial banking accounts and giving you recommendation on how to reduce your spending in certain expense categories.

Start with your last 3 months of income & expenses

Indeed, William Schumacher of Uprising Food also urges “ Know your income. It is easy to make a budget for the money you get while you are on a salary. If you don’t have a fixed income but a varied income, set yourself a salary. You can use your worst day as guidance so that you can use the extra cash as a cushion on your good days.

What To Include In Your Budget

Build generous savings into your budget-as a priority, not a secondary goal. Setting any budget at all already puts you ahead of most people, but if you leave no room for savings, then you’ll never make any financial progress in your life. Also, unexpected expenses will arise. If you have no emergency savings or cushion built into your budget, it will break as soon as your car breaks down or you take a trip to the emergency room, and then you’ll be in debt just like everyone who doesn’t budget.

Daniel Caughill, The Dog Tail

Gladice Gong from Earn More Live Freely suggests going through all your expenses one by one and group them into four major categories:

  • Essential fixed expenses (money spent on your NEEDS)
  • Essential variable expenses (money spent on your NEEDS)
  • Non-essential expenses (money spent on your WANT)
  • Unexpected expenses (Your emergency fund)

And when it comes to setting up an emergency fund, Daniel Snow of The Snow Agency agrees. “ Start an emergency fund. The last thing you think of when you’re young is saving for an emergency. But what this pandemic has taught us is that an emergency is more than necessary. If you focus on starting an emergency fund soon, you’ll have retirement money for a holiday fund and even a down payment for a house. “, Snow said.

Certainly, this is precisely how I have my own budget set up!

Include Impulse Spending Money

Doing this will make your budget much easier to stick to as you won’t have to feel guilty for buying yourself a treat every now and again. And if you don’t spend this allowance, then it can be added to your savings at the end of the month.

Budget Paying Off Debts

Plan for Surprises

For example, James Pollard from The Advisor Coach says “Let’s say your home has a brand-new roof which should last 20 years (240 months). Let’s also assume replacing that roof will cost you $12,000. This means you should be budgeting $50 per month for your new roof. I suggest doing this for all major appliances, cars, furniture, etc. “

Be Realistic

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To be sure, when learning how to make a budget, you’ll want to be realistic. Conversely, no one starts a diet wanting to fail. The same goes for budgeting. Sticking to a realistic budget will significantly improve your chances of success! Lorne Jenkins of Mini Money Management adds “Too often people will set a lofty budget, not be able to stick to it, and completely drop the whole thing. It’s good to have goals, but also know that things happen and if you go over or under budget one month it’s not the end of the world. Habits are very difficult to form, so cut yourself some slack to make sure you stay on track.”

When creating a budget it can be so easy to confidently say “I will only spend this much, I will save this much every single month” but if your goals aren’t realistic, then your budget won’t be, either. Take the time to note your actual income, all the bills you have to pay, other expenses you have such as groceries, and once all those have been deducted, see what you’re left with. From there you can decide how much you’ll put away each month and what you’ll have leftover for “fun money”.

Julie Ramhold, DealNews

Now, if you’re just starting out, you might find that your expenses are (hopefully not) higher than your income. If, by chance, you need a little extra push, Brandon Walch from Shark Eyes suggests being a creating by replacing certain expenses with cheaper versions, for example, “ canceling a gym membership and download a video or mobile application for workouts instead.” Adeel Shabir from Infinite Recovery adds “ the expenses you spend on food and daily coffee can be controlled by making your own food and coffee.

Setting Goals

James Jason of Mitrade seems to concur: “When I was young and getting started in budgeting, I thought saving would enable me to get anything that I wanted. At age 15, I decided to save so as to purchase a mountain bike worth $1,000. After months of saving loose change in my piggy bank, I ended up with barely $100. This discouraged me and I ended up consuming the savings out of frustration.”

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Fast forward to your mid-late 30’s, perhaps the goal is a new car rather than a mountain bike. Regardless of the goal, it’s better to save monthly and pay it off in one shot, rather than to use credit. Colleen Mitchell from Inspired Forward adds: “Save up for big expenses over time. Setting aside a little each month for an expense that only happens once a year means it won’t surprise her when it comes due. Doing this will also give her a better picture of her true monthly expenses.”

What I’d Tell My Younger Self About Making a Budget

Start Early

Meg Marrs of Safer Senior Care seems to agree. “ My advice to my younger self would be to live below my means wherever possible and stick to a budget that includes savings and investment based on long term goals.”, Marrs says. Indeed, making a budget, and sticking to it is a skill. Also, Robert Farrington from The College Investor agrees “Budgeting is a skill and it takes time to learn. You’ll have ups and downs but it’s a skill with benefits that can last a lifetime financially, mentally, and emotionally.”

I would tell my younger self to stop wasting money on so many useless things. I know it can’t be avoided since children will always have impulsive needs, however, I would like to teach my younger self on how to manage money properly. In simple terms, spend only half and save the rest for the future. Looking back, there was a large number of times where the money spent could’ve been used in something more productive. It is never too late or too early to learn about proper budgeting, by starting at an early age can people gain experience and make the necessary adjustments to their lifestyle.

David Meltzer, East Insurance Group

And David Weingot from DMAC Security says “ If you already have a budget in place, try to stick with it. You might think buying that stick of gum won’t account for something, but it will. Be wise about money, because this is something you’ll bring throughout your adult life.

I would tell my younger self to start budgeting early. Waiting until you get responsibilities to start budgeting is a big mistake. Having a budget for your first paycheck sets a good precedent. Instead of wasting all the money and being broke my mid-month, I would have saved more and maybe even started investing early. So my first tip would be: start now, where you are.

David De Haan, Stand Up Paddle Boards Review

Keep at Least Two Separate Bank Accounts

Indeed, Malte Scholtz from Airfocus echo’s a similar suggestion “When I was younger, I kept finding different ways of spending money without putting anything on the side. I was aware of the importance of savings but didn’t pay much attention to it. As a result, my savings account was almost empty and I kept using that money to buy things I urgently needed (or at least thought I did). The breaking point was my decision to start a business. I was incredibly passionate yet I had no funds for investing so I had to delay the process for a while and missed several amazing opportunities.

I would create two bank accounts. It’s super easy to set up a new account, so don’t let this put you off. One bank account would be for general payments such as bills, gas, groceries, and toiletries. You know, the boring stuff.

The other bank account would be for spending. Put a percentage of your earnings in that account every month and enjoy guilt-free and controlled spending! Having a certain budget for spending and for bills can make it easier to save money, too. Whatever’s left can go straight to the savings account.

Beth McCallum, Oh So Spotless

Furthermore, Sandy Yong from The Money Master supercharges this idea by creating savings accounts for each of her goals. Indeed, this is exactly how I budget my large purchases! Young says, “Create Multiple Savings Accounts so that I can keep track of my individual savings goals. When you go into my online banking account, you can also create a “nickname” for your account. For example, you can label it ‘Vacation Fund $2K’ or ‘New Laptop $900’. That way I would not feel tempted to spend my money because I could see clearly how much I have saved up and how much more I need to reach my goal.”

Pay Yourself First

The second thing I’d tell my younger self is to always pay yourself first, no matter what type of budget you have. Initially, I budgeted like most do where I’d put in all my expenses and whatever was left over went to fun things or savings. Now, I have all my retirement/savings contributions automatically deducted or I deduct them first when my paycheck hits. It’s important to prioritize savings, that way you’ll adjust to what money you have left over rather than having nothing for savings.

Tawnya Redding, Money Saved is Money Earned

A Budget isn’t only for when Money is Tight

Keeping an Emergency Fund

Mark Jenner from FoodFireFriends adds “ As a young fellow, I didn’t know a thing about budgeting. I’d spend until I had nothing, and this didn’t change until I had an emergency one day and was seriously stuck. It sent me into a full-on panic and a friend had to bail me out. “ I guess the question remains, who hasn’t been in a situation like that?

Letters to Your Younger Self

Letter #1

Dear Self,

How are you? It’s been a while. I know you’ve been itching to do something great but hear me out.

I urge you to listen and follow these things carefully. Let me assure you, you will do better!

  • Start small — You can’t have a dollar without a penny. No matter how small it is, start saving money. Save a portion of your allowance or any spare change you get.. Get a piggy bank and start putting pennies or dollars. Pick up every coin you see on the road — a little goes a long way.
  • Be simple — the simpler your life, the less you need to spend on things. You don’t need to impress others. It’s easy to brag your new iPhone and get noticed. But wait a couple of years and you’re not the talk of the town anymore.
  • Set a clear goal — Why do you save money? Do you want to buy a house? Get $100,000 on a bank? Think of your purpose, and stick to it. If you’re tempted to buy something, remind yourself of that goal.
  • Get an accountability partner — Well, they say two heads are better than one. Ask for help. Your partner can help you get motivated to budget and control your spending habits.
  • Invest early — Time is an important factor in how your money grows. Don’t just let it sit in your bank, make it grow. Invest as soon as you can. If you don’t know what to do, research, or ask a financial advisor.
  • Reward yourself — For every big step, you achieved, reward yourself. Have you hit the $10,000 mark? Reward yourself — but not too much. The idea is to make the process enjoyable.
  • Gratitude — Be thankful. You would always complain about how little you have and forget to be grateful. Learn to appreciate even the little things. When you learn the value of money, your whole perspective will change.

Uphold this advice and you’ll be rolling in no-time. I care for you and I know you will do well.

Sincerely,
Yourself

Letter #2

RE: An important tip

Dear Pericles,

We don’t often have a chance to speak with our younger self, so when given this amazing opportunity, I jumped. The fact is you have been on my mind lately, so I am glad to have the chance to talk. I know you are dealing with a lot right now and you are both excited and nervous about the future. Well let me start by saying it all works out. I won’t say anymore because I don’t want to spoil the adventure for you.

I know you have completed college and are now working in a career that you love. I have something important to tell you that I know will make a huge difference in your life and for your future. Here it is: Create and manage a budget. Now I know that it sucks to read that. I really get it. But it is probably one of the most important things you can do right now. But don’t call it a budget. I hate the name too. Sounds way too constricting — like all the rules around the house when we were kids, lol. Anyway, name it something else. I prefer Prosperity Structure myself as it is inspiring. But pick something that works for you.

Start by writing everything you are spending money on, rent, car payment, insurance, utilities, groceries, dining out, credit card debt, cash, etc. All that stuff. Don’t forget to include the expenses that only come in once or twice a year. That way you won’t be caught off guard when they show up in the mail. You should also include money for your retirement, travel — since I know you love that, and something for other expenses that may come up during the year.

Then, write your monthly take-home pay at the top of the page and start subtracting all those expenses from that number. I know you don’t want to, but trust me, you will be glad you did this now rather than later. Make sure you subtract everything and then see what is left. This is where it gets fun. Take 50% of that number and put it towards retirement, 40% towards travel, and 10% towards misc expenses.

What you just created is so much more than a budget. You created a structure to manage and grow your prosperity. Seriously! If you just pay everything on that sheet each month, and not spend more than you set for each item, you will be getting richer every day, month and year. Like no kidding. Your debt will go down and what you are saving will go up. And if you invest the retirement money wisely you will be growing it even faster.

When there is enough money in your travel account, go on a trip. Pay for it on a points credit card and pay the credit card in full from that travel account when you get home. The points are an added bonus and you don’t have to worry about how you are going to pay for the trip because it’s already paid for. Boom! You’re welcome.

I really love you and wanted to give this to you while you are still young and can get the maximum benefit in your life. You are going to have an amazing journey, so enjoy.

Pericles

PS In 2019, you may want to invest in a company that makes surgical masks. Just a thought.

What to Tell Your Children about Budgeting

Before you sit down and create a budget, you need to understand that a budget is part of a bigger process known as financial planning. A financial plan requires goals, desires, and dreams. These dreams are what powers your plan and will ultimately dictate how you deploy your financial resources. A budget reflects the choices you make, allocating resources between short term needs, and long term goals.

You cannot create a meaningful budget without knowing your numbers. How can you allocate monies towards rent, utilities, food if you don’t know how much things cost?

And lastly, it is vitally important to know how to live within a budget. Therefore once you create a budget monitor your expenses and evaluate how well you are doing.

How to Make Sure your Budget is A Success

If I were to give my younger self some advice on starting a budget, it would be to avoid being in debt. As much as possible, try not to borrow money from anyone, whether it’s from a family member or a close friend, even if they willingly lend it to you. The feeling of being indebted to someone is a burden in many ways, and you would want to avoid that, as much as possible. And if you embody that throughout your growing life, you won’t have to deal with it at all, which will make your relationship with money a lot healthier.

Ben Walker, Transcription Outsourcing

Thomas Henske from Lenox Advisors adds “Most everything about starting budgeting habits early helps the world conspire in your favor. Those budgeting skills include making saving a priority. Without making budgeting a habit one’s financial well-being doesn’t stand a chance.”

Use Direct Deposit

Just Because You Have It, Doesn’t Mean You Have to Spend it

Less is more. When I go out shopping, I almost always ask myself if I really want the item, 1 hour later. This ensures that I’m not wasting money on something I won’t need. For example, in my 20’s, I’d often find myself buying clothes and shoes at the mall, only to leave them hung up in the closet with the tags.

Ryan Roller of Bead the Change agrees “Just because you have it, doesn’t mean you have to spend it. At one time having money; any money, translated solely to what I could buy with it. Saving it never occurred to me, and using it as a tool was an alien concept. In the time since I have learned to appreciate saving money, and using money as a tool to build on and to make grow.”

Budget by Pay Day, not by Month

Just Stay Home

And, I certainly agree, if people can learn meal planning and cook at home, they can save so much more than going to restaurants. It’s also great for the waistline! Eliza Cross from The YOLO Blog adds “In 2019, the USDA says Americans spent an average of 9.5% of their disposable income on food, with takeout, fast food, delivery, and restaurant meals accounting for more than 54.8 percent of total food expenditures.

Live Frugally and Shop Savvy

Living frugally means you spend on what matters most while saving on things that don’t. This means, always looking for used options before buying anything brand new, comparing prices, and using coupons. The good news is, it’s so easy to save these days.

For instance, sites like CouponFollow.com offer thousands of online coupons to popular retailers to help you stretch your budget. Also, you can even download their Cently browser tool that automatically applies coupons at check out so you don’t have to do any extra work searching online for one. And, check out Fetch Rewards, this free cashback app rewards you with free gift cards to Walmart, Amazon, and other retailers by simply uploading a picture of your receipt.

Use these free gift cards to offset ongoing expenses and put the money you save toward your bills or savings goals, Woroch says.

Double Check and Reconcile the Numbers

It’s More Stressful NOT to Budget

Be Frugal, Thrifty and Minimal

Indeed making the right spending choices can make all the difference. For example, Tim Sheehan from Greenlight adds “I’d also underscore just how important it is to learn how to make trade-off decisions with your money. Believe it or not, kids can develop emotional reactions to spending and saving by the age of five. Had I known this in kindergarten, I would have thought more about wants vs. needs and paid more attention to making smart decisions with my allowance.”

Don’t Stop When you Get Ahead

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If you’ve made it this far, one thing you might need to watch out for is what happens when you get ahead. By that, I mean, once everything is working and the wheels are in motion, you might start to get a little lazy. Indeed, getting lazy might feel warranted, but, it can backfire.

One way to combat this is to keep tracking income and expenses daily. Allison Baggerly from Inspired Budget agrees and adds “You’ll learn so much about yourself and your finances when you truly know your spending habits. You’ll learn where you tend to overspend. Once you know this, you can set up boundaries and expectations to help you reach your financial goals.”

Ask The Experts

Credit Unions and other Financial Institutions

If I could go back and talk to my younger self, I would tell myself to join a credit union sooner. Credit unions are not-for-profit and act in the best interest of their members, and as I worked toward financial independence in college, it would have been especially helpful to have a trusted financial institution helping me out along the way. By having a positive relationship with my financial institution, I would have become financially literate a lot earlier in life!

Valerie Moses, Addition Financial

Originally published at https://thefinanciallyindependentmillennial.com on September 8, 2020.

Written by

Rick is a Personal Finance Expert, Best Selling Author of The Financially Independent Millennial

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