Do you ever wonder where your money goes each month? A household budget will allow you to tell your money where you want it to go, making it one of the most effective financial tools available. Even still, only 41% of Americans use a budget

Regardless of your income, and whether it is predictable or not, you need a budget to create a spending plan for your money. With a budget, you will be able to come up with a plan to pay regular expenses while saving for retirement, fun expenses, or something in between.

If you’ve never budgeted before, it can be daunting because it requires some patience, some skills, and, as with all things, some experience to master. Budgeting itself is very simple, and most complex budgeting ideas or schemes are likely to be less effective for the majority of people — often because they’re complicated. 

Are you ready to get started?

couple at table


Know your why

Most people don’t like to do something that can be tricky if they have little reason. For many, simply paying bills isn’t a great reason to begin a budget, it is just something in life that we all do. That is why you need to start with your why. What does that mean?

If you and your partner know what you’re budgeting for, you’re much more likely to succeed. You should reflect on your values together. Do you want to retire on a lake? Send the kids to a certain school? Do you want debt freedom? A certain vacation? A retirement savings or lifestyle goal?

You don’t have to select a why that encompasses your whole life’s ambitions from the start. It may even evolve over time. But, when hard decisions about spending money arise, you will be more successful if you can reflect on the WHY that is important to you before you begin putting numbers in a spreadsheet. 

counting money

Start by tracking your income

The first number to go in your monthly budget is your income. If you have a predictable, steady paycheck that doesn’t change each month that is pretty easy to do. Just look for the bottom number, or your take home pay, after taxes, insurance, 401(k), or any other items that are deducted from your paycheck. 

Pro-tip: It’s important to learn which employer-sponsored programs you should be participating in. Often the most important will be health insurance (where available) and also 401(k) savings. This is especially important in the case of an employer match. You don’t want to turn down free money!

If you get paid either once or twice a month, determining your monthly income is relatively easy. But if you are paid weekly or every two weeks, your monthly income can get confusing because it will change some months. If you simply calculated your annual income, and divided it by 12, the numbers wouldn’t always come out even so you need to make sure you are tracking your income each month. 

Pro-tip: If you get paid ether weekly or every other week, live off your “regular” 48 or 24 paychecks and put the money from your “extra” paychecks into a savings account.

What if you have unpredictable income?

The most complicated budgeting comes with those who have variable incomes, though it doesn’t take away from the need to budget and it is certainly doable. Your variable income may come from working for yourself, changing hours, sales commissions, tips, or bonuses. In those cases, known monthly salaries are not a thing. 

But you can look at 3-12 months past income numbers and pick a conservative income number to build your budget around — perhaps your 2nd or 3rd to lowest income month in the last year. Then start with a bare-bones budget, meaning the basic things you need to survive and what you spend your money on if you only made the minimum that month. Prioritize your paycheck and spread it out from most to least important. If you have a down month, just hold off on an expense until the next month that you have money available. 

person celebrating near waterfall

Expense projection

Once you have your income squared away, it is time to enter your monthly expenses. Many of these expenses are simple to project. You are probably pretty sure about what your monthly mortgage payment or rent payment is going to be. If you are wondering what all of your expenses are, look at your bank account from the past couple months. That will likely have most expenses, and if you don’t even know what you spend on groceries or restaurants, this will provide some clarity on expenses that add up without realizing.  

Pro-tip: Even “regular” monthly expenses can vary. For example, if you have gas heating, your gas bill will naturally be higher in the winter (in most states) and lower in the summer. The same is true with air conditioning and your electricity bill in the summer. 

There will be many other expenses that don’t fit as neatly. Have you ever made it to December and realized you didn’t have any money saved for Christmas? That should never happen. You should not have to go into debt to buy Christmas presents. After all, Christmas falls on the same day every year.

That is why you should also set aside money each month in what is known as a sinking fund. This could be broken down into a couple different categories. This includes annual or other regular (but non-monthly expenses) or larger purchases you know you will be making over the next year. Non-monthly, but predictable expenses, include everything from Christmas to auto insurance to yard maintenance. Larger purchases are future expenses you are saving for such as a vacation,  a new car, or other big goals you might have.

How does this work? If you want to save $600 for Christmas, set aside $50 each month. It’s as simple as that. By doing this, you will create peace of mind and remove surprises down the road. 

Pro-tip: Store this money in a regular savings account or money-market account. Just make sure you have a debit card tied to the account and the ability to easily move money back-and-forth from your checking account. This will separate your money from your checking account, which will prevent you from easily spending it, and, while it won’t be much, you will make a little bit of money on your savings.  

Zero-based budgeting

A zero based budget controls spending by giving every dollar a name and making sure the money you are spending matches the money that is coming in each month. This doesn’t mean you spend every dollar you make, but that it is accounted for. This includes not just spending, but also saving, giving, or investing.

It helps you learn a lot about your spending habits and aligns your spending with goals and values.  

Helpful budgeting tips for everyone

tip jar

Tips for beginners

As you get started budgeting, it is important that you start with a realistic budget, have easy early goals you can hit, and that you don’t give up at the first unexpected expense.

Be realistic: Your early budgets will have problems and inconsistencies. Create a category for miscellaneous expenses to try to cover the gaps. Try to quickly correct for overestimating income or under-estimating expenses. It’s okay to write a bad budget or to fail to meet one. You should expect to struggle with the first few budgets just like you would struggle with the first time you tried to ride a bike or a skateboard. You want to learn from each small mistake and use it to make a better budget.

Set some early goals: Find a short term goal you think you can easily achieve and make that part of your initial WHY. Save $100 or $1000 for a purchase or an emergency fund? Pay off an old, but small credit debt? Find an early win to get you rolling and feeling good. This will go a long way to get you excited about saving and spending money wisely. 

Adapt and survive: You’re going to blow your budget. You might forget to save for some things that in hindsight you can’t believe you forgot. Likely you will have unexpected expenses ruin your plans. Learn to adapt your budget and roll with the punches. Maybe you can delay certain spending, use the emergency fund, or cut back on certain discretionary purchases for a while to make things work. Reflect on the WHY and keep going! Budgeting, and winning with money, is about continuing to move forward toward the goal, not giving up at the first sign of a setback. 

Update your budget monthly: Even if you have a regular income, and fairly regular expenses, you should update your budget each month to reflect what you have to pay each month. This is necessary to truly be able to direct every dollar in your budget. To make this easier and ensure consistency, set a regular date each month where you will work on your budget. And make sure your partner is included in all discussions. 

veteran tips

Tips for veterans

We know there is always room for improvement in our lives. That is true even if you have been budgeting for some time now. 

Passive barriers: Sometimes it’s the small things that get in our way. Did you know that moving the dinner serving tray more than 6 feet from the dinner table will reduce the number of people who get seconds by 76%? A common tip to help people get to the gym is to lay out the clothes you need the night before or always keep a gym bag packed and ready. I’ve used receipts as tokens that help remind me to record my expenses each day or once a week — paper in my back pocket is a good reminder. What types of troubles and invisible barriers are preventing you from spending the right time and energy budgeting each month?

Talking to your partner: It’s easy to be negative or angry when your partner breaks the budget, but we all do it. Try to cool your anger and have a civil conversation about WHY you’re budgeting and how you can help meet their needs with this purchasing decision over that WHY. Maybe there’s a simple fix or maybe you need to revisit the big picture, but it’s important that you stay a team. Anger and sharp criticism creates an adversarial mentality for a conversation. Try to keep a shared vision and a collaborative tone. You’re in this together.

Automation: Getting rid of debt or saving for that killer Euro trip is so much easier if you automate it. This is like the rule of “paying yourself first” on steroids. Automate the money flowing to separate savings accounts and watch it pile up. Depending on yourself to take action each month is far less reliable and less successful. Just tip a hat to us from afar enjoying yourself somewhere in Paris, hiking the Dolomites, or touring Copenhagen.

Values and goals: Revisit what you and your partner value and wish for in life, this year, and this month with frequency. If you’re not having a conversation about money that reflects on your values and WHY at least each month, then you’re so much less likely to stay on the path AND to be on the right path for your goals. Refresh your mindset and your commitment with a monthly chat about the budget and a yearly refresh on the big picture. Celebrate your successes along the way!


Tools to help you budget

Whether you are just getting started and feel overwhelmed by the thought of budgeting or you are a veteran, we have budget tools that will make budgeting easier for you whether you prefer Microsoft Excel or Google Sheets

Here is how these budgets will help you.

Major expense categories: The templates start with the most common expense categories, including housing, food, transportation, utilities, medical, insurance, recreation, clothing, and travel. You then have the option of inserting any other expenses you might have that month. The template also has spending guidelines to help you with each category. 

Monthly percentages: Another helpful feature of the template is the approximate percentage of each category. For example, if your goal is to not spend more than 25% of your income on housing, you can easily track those numbers. 

Personal financial goals: The template also comes with various financial goals, including savings, 401(k), college, car purchase, home projects, Christmas, etc. The options are based around your needs and are fully customizable. 

Ready to go: The cells have been formatted to automatically calculate your expenses minus your income so you don’t have to do any of the hard work. 

If you haven’t started yet, the best day to begin budgeting is today. Revisit what you and your partner value and wish for in life with frequency. If you’re not having a conversation about money that reflects on your values and your WHY at least each month, then you’re so much less likely to stay on the path AND to be on the right path for your goals. Refresh your mindset and your commitment with a monthly chat about the budget and a yearly refresh on the big picture. And celebrate your successes along the way. By doing this, you will starting winning with money and you’ll be on the path to financial independence. 


6 July 2019 at 7:34

Excellent article! I used to think that because my wife’s self employed income fluctuated so much that we couldn’t do a budget. This article kind of blew that excuse up. Thanks a lot!!

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