You are ready to create a budget for your finances! You have done the research. You are motivated and enthusiastic and completely overwhelmed, because you still are not quite sure how to create one that is realistic?
I get it. You are ready to start something new that is supposed to help you create a stable financial future. You are motivated and excited, but don’t want to get ahead of yourself and bite off more than you can chew, because that will lead to early failures in sticking to your budget and giving up completely.
No need to give up before you even got started. Below I have listed 7 steps to help you create a realistic budget and get you on your way to claim control of your finances.
1. What is your Monthly Income?
Before you can create any kind of budget or financial planning you need to know what you are dealing with.
How much money do you earn in a month? How much money do you get every paycheck, if you are getting paid bi-weekly?
Do you have one stable income source or do earn money from various sources that may not be as consistent as the good old fashioned 9-5 job?
In a notebook dedicated to your financial matters allocate a few pages to note down all your money earning sources and how each of them yield in a month.
Of course, if you rather create a spreadsheet on your computer, that is absolutely fine. It is just very important that you keep meticulous track of your finances.
2. What are your Fixed and Variable Monthly Expenses?
On a separate page or spreadsheet list all of your expenses.
Make two lists, one for your fixed expenses such as rent/mortgage, cell phone bill, utilities, everything that has a fixed amount and is due every month.
The second list details all your variable expenses during the month, such as groceries, toiletries, gas, everything that is still considered necessary spending during the month, but fluctuates in price.
If you’re really committed to starting a budget, you need to figure out how you’re going to organize that budget. We actually have a $5 Printable Budgeting Binder that you can purchase to do all of this on paper, if you aren’t a fan of fancy budgeting software that seems too complicated!
3. Decide on a Budgeting System
So, now that you have your lists and an idea what you are dealing with when it comes to your earnings versus your spending it is time to decide what type of budgeting system you want to implement.
There are a number of options available that are beneficial for those, who are just beginning their budgeting venture. I have written a handful of articles listing and describing some excellent techniques, including the cash envelope budgeting system, the cashless envelope budgeting system and the glass jar budgeting method.
This may take some serious consideration deciding which method would work best for you. Here are some questions to keep in mind when choosing a budgeting system:
How many in your household would be in charge of running errands, picking up groceries, filling up the tank or general would need access to shared household money?
The more people are involved, the more organized the budgeting system has to be so that confusion can be avoided and overspending does not occur.
How comfortable are you with carrying cash on a daily basis?
The cash envelope budget requires you to carry the money allocated for each budget category in individual envelopes.
So, if you know your trips to and from work and the grocery store lead you through sketchy areas of town, then that is something to keep in mind and the cashless envelope budget might be a better option for you.
How much can you trust yourself with cash/your debit card and sticking to a budget?
Sometimes we all have to trick ourselves into breaking bad habits, so keep that in mind when you start creating a budget, because you do not want to set yourself up for instant failure. That really is not the point.
4. Be Realistic
This step goes hand-in-hand with the last question I posed, because in order to create a realistic budget that you are able to stick to requires you to make realistic plans and goals.
Figure out what your short- and long-term financial plans are, the realistic ones.
I know it would be absolutely superb, if you were able to pay down a large sum of debt within a year, plus save plenty for a rainy day, plus be able to afford that dream vacation of yours.
I hate to break it to you, but unless you win the lottery or a rich aunt you didn’t know about left you a considerable inheritance, you may have to adjust those plans.
Also, this is a good time to take a look at your expenses and decide what you could cut in order to save a little money.
I have mentioned it time and time again in my other articles and I will probably continue to do so for the foreseeable future, so I apologize, but consider cutting cable TV.
It is at least $100 every month for channels you most likely don’t even watch, because the ones you do want to watch are not part of the plan you have and you really can’t afford a larger plan.
You don’t have a say in what you get to watch and you are always on the clock, because broadcasters do not wait, if you happen to get stuck in traffic on your way home.
Consider alternatives, such as Netflix, Amazon Prime and Hulu. They are cheaper and provide on-demand services.
5. Do Not Forget Your Savings
It is always a good idea to designate some of your monthly earnings towards your savings.
It can be difficult to get started, especially once you notice that you have a bit more money left over with your new budget in place and unnecessary expenses cut.
This might be another case where you have to trick yourself a little in order get you started. Also, having to remember to put away a certain amount of every paycheck into your savings account can be stress inducing.
Years ago, we set up an automatic transfer with our bank that takes $200 out of each paycheck and deposits it into our tax free savings account.
By the time I check our account standings the day after payday the money has already been transferred and we don’t have to worry about a thing, while our savings steadily grow.
If you’re looking for simple ways to save money, you should try our money saving challenge!
6. Review, Adjust and Modify
You have done your research. You have crunched the numbers. You have been meticulous in recording your spending and earnings every month, but your budget system is still not working quite as it should be.
Figuring out a budget that works, adhering to that budget and making it part of your daily routine takes time and adjustments.
Rome wasn’t built in a day, so don’t be too hard on yourself. Stay focused and dedicated and admit to yourself when changes are necessary.
Review your finances every month to keep track of your progress.
Adjust the money allocated to each budget category to compensate for inflation, changes in household dynamics etc.
Modify the method to fit your needs, to an extent. Sometimes you can see where modifications to your budget method would benefit your overall needs and way of handling everyday life.
If it is a sound, financially logical and smart modification to undertake, do it.
The worst thing you can do after having put that much work into trying to get your finances under control is to stick your head in the sand and hope for the best it’ll all work out somehow.
Keep taking control by staying on top of your budget, your spending and your earnings.
7. Practice Frugality
Being on a realistic budget also means making changes in your lifestyle that you may have never made before.
I found that any budget is only as good as your mindset towards it and it gets a lot easier, when you add frugal lifestyle choices to your everyday life.
Being frugal does not mean punishing yourself or living a life that compares to that of a nun (or monk). It simply means making smart choices when spending money.
Ask yourself, if you really need a certain item you see in the store or if you only just want it.
Save coupons and take notice of those big end of season sales. Last winter I was able to save $40 on a set of queen flannel bed sheets by using a coupon and going during one of their sales promotions.
Have you ever been looking for coupons for 20 minutes when shopping online? This is a huge pain, but is totally unnecessary! You can download the Honey Browser Extension to get them to look for those coupons for you. They will search the internet for the best coupon codes and the average honey user saves $30 on their FIRST purchase!
Change your attitude towards what it means to have fun on the weekend. Fun does not equal spending money. It simply means finding things to do that interest you, that make you happy and that don’t twist your stomach in a knot when you think of your credit card bill the next day.
Creating a realistic budget is not as difficult as it may appear at first sight. Do not get overwhelmed and keep a keen eye on what is logical and makes the most sense when it comes to making financial decisions.
Take it one step at a time. The hardest part is getting started and by having come to this website you have already made a bug step in the right direction to gain control over your finances.
The rest is just a little trial and error until you have figured out what works best for you and your household.
You got this.