How to Budget – Everything You Need to Know

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Before I start budgeting I had money issues. I didn’t know where my money was going and I wasn’t sure how much I have left. I would feel guilty about spending too much one day. And the next day I would feel like a miser because I only saved my money.

Budgets didn’t fix all my issues right away. But they did help get me started in the right direction. Some things I never would have done without a budget.

I never thought I need a financial plan until I tried to figure out why I felt like I need to save more. The reason I was trying to save more was I trying to get security. And having a financial plan gives me that security.

It wasn’t until I saw where my money was going that I start to consider how much happiness I was getting from the money I was spending. Turns out I’m not the best at buying things that make me happy.

Budgeting is probably one of the most important things I ever did with my money. I would have never found money to invest without a budget. Before a budget, I wouldn’t be able to save without feeling deprived.

And yet if you are like the majority of Americans you still don’t budget.

Why not?

A big part of why people dislike budgets is they seem restrictive. And let be honest nobody enjoys depriving themselves.

Budgets aren’t about restricting yourself, they help you make intentional choices about where your money is going.

If you had a bad budgeting experience before replace the word budget with the word plan. I am going to use the word budget throughout the rest of this post. And whenever I say budget remember that I mean making intentional choices with your money.

Your reason for budgeting

Budgets are a plan for your money so before we can start figuring out how to carry out your plan and achieve your goal we need to know what that goal is.

There are lots of different reasons for budgeting and I have written two posts about it.  Here are 2 important reasons everyone should budget and here 6 more reasons for budgeting.

Budget is good for lots of different reasons. There are 2 important ones that I would like to touch on here. Budgets force you to plan where your money is going. And they make you track your spending.

Now we could get into why tracking your spending is good for you and why you should plan where your money is going. But the truth is these aren’t the reasons most people start budgeting. They’re the reasons you should budget but they aren’t exactly motivating.

A common reason people budget is to help them reach their goals.

So what goals do you have that involve money? And before you say you don’t have any financial goals remember that every big moment in life has financial consequences.

You want to travel more. That involves money. Planning on getting married and starting your family. You’ll need money to do that too.

All the big goals in life involve money.  So what your goals? Why are you budgeting? What do you hope to accomplish?

How are you going to budget?

Once you have a goal for your budget let’s talk about how you are going to budget. You can budget using a few different systems.

  • a budget app
  • a spreadsheet
  • paper and pen
  • cash envelopes

There are lots of different apps for budgeting including free ones. Personally, I use YNAB which if you use my affiliate link you get two months free. I use YNAB because they are amazing. I have tried several different apps before them none of them was as good as YNAB.

Another way you can budget is with spreadsheets. Now spreadsheets are usually free and you can customize yours as much as you want. The downsides are that mostly done by the computer so it can be harder to keep it up to date.

Here are 10 free spreadsheets if you want to budget with them.

A different way of budgeting would be by the old fashion way of pen and paper. If you already bullet journal this can be a good way for you to budget as you don’t have to learn anything new.

Other people have used this method for great results. If you need some inspiration look at these pretty bullet journals spreads for budgeting. This is a good journal for that and these are my favourite pens.

And the last way you can budget is with the cash envelope system. The premise is simple to withdraw all the money you have to spend in cash. Get some envelopes and label them with your budget categories. Then divide the cash among the envelopes.

This is a great way to budget if you worry about overspending as once your cash is gone you can’t spend more. Which stops you from overspending. Here how one couple use this method. 

Budget categories

Once you figure out how you are going to a budget we can start setting your budget up. A big part of your budget and what will make it successful or not is your budget categories.

People have lots of question about budget categories. How many do you need? What categories should I have? And these are good questions.

But I can’t answer these questions for you. If you want your budget to work it should be personalized to your life.

So if you don’t have a car don’t have categories related to a car. If you have pets include categories for them. Make categories for the life you are currently living.

That being said there are a few things I would recommend. Try to keep the number of your categories down. Your categories names are important. And try to have one general category for the weird things you don’t usually get.

If you want some more guidance read this post how to set up your budget categories.

Budgeting your money

Budgeting your money is straight forward. You go through your categories and put money in them. Making sure to never budget more money then you have.

There might be times when you fall a little short. You might not have enough money to fund every category. Then you have to think about your priorities.

I found it easiest to list your budget categories in order of importance.

For me, that means it my true expenses like gas and food at the top of the list. Then it’s my saving goals, my dreams and finally, it’s my fun categories.

If I run out of money while budgeting I know at least the important things are covered. And I’m much better at finding extra money for my fun categories then I am at finding money for my savings.

Maintaining your budget

Once you have your budget up and running it crucial that you maintain it. You can make the best budget ever but if you don’t keep it up to date it’s useless.

Keeping your budget up to date isn’t hard. Every time you spend your money enter it into the budget. If you can’t enter it into your budget right then and there save the receipt or make a note for later.

As soon as you can enter every transaction into your budget. Keeping it up to date and accurate will help you stop accidental overspending.

But sometimes despite our best intentions we still overspend. Don’t worry it doesn’t mean you fail at budgeting. Overspending happens to everyone.

The best thing to do after you overspent is seen how you can cover it. Could you pull money from another category and put it towards that one. I usually pull from either my slush category or my fun categories.

Once the overspending has been covered take a moment and think about why it happened. Is this a one-time thing or has it been happening more frequently? Did you check your budget before spending? Take some time to reflect on what happens and how you can prevent overspending in the future.

Monthly budget maintenance

In addition to my day to day budget maintenance, I also do a few things on a monthly basis to maintain my budget.

The first thing I like to do is what I called to balance the budget. I choose not to link my bank accounts with YNAB. To make sure I don’t miss anything at the end of the month I make sure my bank account balance matches the one in YNAB. Occasionally I have missed something and will enter it in then.

Another thing I like doing on a monthly basis is reflecting on the past month budget. And then seeing if there anywhere I can improve.

Sometimes it’s renaming a category, other times it tweaking the order their display in. Little tweaks can help improve your budget.

You can see a bit of my monthly budget maintenance in my monthly income streams reports.

If you budget with a partner a monthly meeting is also a good time to check in with them. And their feelings about budgeting.

Starting a new budget

There might be times with your budget that there are big problems. Maybe you haven’t been faithful about entering transactions in. And now there are weeks to catch up on.

Or maybe you were messing around in your budget and the numbers are off. And every time you go to fix it things just get worse. Yeah, that happened to me.

If there are big problems in your budget that would take hours of frustration to fix. Don’t fix that budget. Make a new budget.

It is good to have a fresh start. But that doesn’t mean you have to start from scratch either. Take what you learned with your previous budget and incorporate it into your new budget.

Just like you did when you made other budgeting mistakes. Take some time and think about where the big problems came from. How might you prevent this from happening again?

Try to figure out the issue so it stays behind in your old budget and doesn’t come with you into the new budget.

Living on a budget

Something that good to think of when budgeting is how it is going to affect your life. There’s a lot that been said about living on a budget. And how to make that adjustment easier.

Here are a few things that will make living on a budget easier. Budget for real life. Have money you can blow on anything you want. Of course, you can also make living on a budget easier by spending less and earning more.

If you are working on saving more you can check out 5 tips to save more. You could also sign up for E-Bates to get cash back on purchases you are already making.

If you are having a hard time adjusting to a budget this post could help. Also, this post has some easy ways to improve your finances today.

You could also take a course I took Bank Boost and it helped me save $4000 in two months without hating my life because of it. It isn’t specifically about budgeting but it a spending diet and earning spree that will help you get used to living below your means.

But remember you are allowed to change your budget.

Some see budgets as barriers, restricting them. But I hope after reading this post you can see the freedom in budgets.

Budgets can help you reach your goals. They can provide financial backing for your dreams. So what are you waiting for? Start budgeting today.

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How to budget