Budget is NOT a Bad Word and How to Make a Budget

Creating a budget for the first time can be so intimidating, but it doesn’t have to be! Whether you know a little or a lot about personal finances, having a budget is vital. No matter what, you need to make a plan that works for you and others that you share a budget with.

If you don’t have anything else to start with, you can use a simple budget template in Excel or Google Sheets and get started. We’ve got budget templates that you can download for free here. We won’t ask for your email or anything else – it’s yours without strings attached. That’s the Start100K way!

Why You Need a Budget

For no other reason, you need a budget for awareness. If you don’t know where your money is going, it will get away from you quickly. Having awareness around where your money is going and why helps you make a game plan moving forward. If you heard that cutting back on lattes will solve your problems, but you only spend $10 each month on coffee, you’ll be disappointed when you don’t hit your savings goals.

How to Make Time for Budgeting

You DO NOT have to spend a ton of time or money making a budget. If you have a busy schedule (we all do), then just pick a day and time to set aside solely for the purpose of making a budget. Tell yourself, “This Sunday at 2 p.m. I will sit down for 1 hour and start my budget.” Make it a priority, tell everyone in the house that you will be unavailable and stick to it.

You might not be able to complete your whole budget, but you can get started. You can break the task up into smaller chunks over a couple weeks and get it put together. No matter what, if you don’t get the budget done, set another time to set aside for completing the budget immediately. So, if this Sunday you can get the budget template picked out, saved to your computer, and all your “big” bills (mortgage, rent, food, etc.) that’s fine. Immediately set aside time for next Sunday at the same time for the same reason. It can be any time, just make sure it’s focused, uninterrupted time.

Starting Your Budget

The first thing you need to do is determine what format you’ll use to create your budget. You can use spreadsheets, budget apps such as Mint or You Need a Budget (YNAB), or even envelopes and a pad of paper. You can always change format later. Pick one and move on.

Note: We don’t get paid if you use any of the tools mentioned, we’re just providing examples for ease of use.

You’ll want to pick based on your personality type and what you’ll actually use. Think about how you normally take notes or make reminders for yourself. If you take notes on a notepad, then use that. If you keep a stack of sticky notes with all your needed info, use that and place them on envelopes. If you use an automated tool like the notepad on your phone or Evernote, maybe a budgeting app might be best.

Personally, we use a blend of these tools. We have a master budget on a spreadsheet that we keep updated at least annually (on Money Day) or when there’s a big change. We implement the budget using a blend of automation, envelopes, and now, Google Forms.

It doesn’t have to be complicated; it just has to work.

What to Include in Your Budget

In a word, everything! No matter how small or insignificant you think the expense is, add it to your budget. The idea is to plan out and capture every expense.

Big Ticket Items First

You’ll want to get all the big-ticket items accounted for first. Make sure you include your rent or mortgage, groceries (more on that later), health insurance, and utilities. These are some of the biggest expenses many people have.

Groceries Get Out of Hand

When we first started budgeting, we were shocked at how much we actually spent on groceries. I had no idea how much we were spending on food. Granted, we cook nearly all our meals at home and choose higher quality ingredients. Health and performance are really important to us, so we emphasize quality meats and vegetables which cost significantly more. This isn’t something we’re willing to compromise on, so we just have to accept this will be a larger cost for us. As a matter of fact, behind our rent, our grocery bill is our highest expense.

We’ve tried many methods for tracking and controlling our spending on groceries. We finally landed on just using cash in an envelope (actually a pocket in my wife’s purse) that is set aside for groceries each paycheck. If we have left over grocery money at the end of the month, we put that in our “extra grocery money” envelope. Then we use that extra if we’re short one month or have a big meal like Thanksgiving or have friends over for surf n turf.

Car Payments Aren’t for Everyone

You may find that car payments are a big expense. Ours was at first, but eventually we got rid of the expensive vehicle we had and got two modest vehicles paid in cash. However, we still make a “car payment” to ourselves each month.

Basically, we took what we were making in payments each month and started sending that to a “vehicle fund” savings account each month instead. I talked about this in Episode 4 on the podcast. We’ve bought several vehicles using this method and pay for all maintenance and repairs from this fund as well.

Utilities are Hard to Anticipate

We still have a hard time anticipating how much we’ll pay each month for gas/electric, but we’re able to balance that fairly well. Our utility company does have a plan that will give you a flat payment every month, but I prefer to see how much we’re using and make adjustments along the way. We personally budget for our highest single month from the previous year. This leaves us with a little surplus in some months which we just put back into other savings.

The biggest thing to note here is that you can request adjustments to your due date to help level out your payments throughout the month. For instance, we pay rent on the 1^st of each month. Therefore, we try to shift some of our utility bills to the end of the month to balance things out.

Entertainment Money

The other big categories that we have are entertainment and “booze” money. We have a set amount for each, and we also take this money out in cash. This helps us regulate how much we’re going out and helps keep our alcohol consumption in check too. This is another area where we splurge some. My wife likes good wine and I like authentic German Hefeweizen – neither are cheap.

Everything Else

I don’t know your life, but I do know that you’ll have additional categories. I make a line for everything that is spent. Our streaming services, haircuts, and many other things are tracked like this. We also include gas for our cars, but only estimate it. We intentionally leave a buffer in the checking account for higher spending months.

The main thing is that you track every expense and move forward with the intent of no more “surprise” expenses.

Spending Buffer for the Budget

We always keep a $1,000 buffer in our checking account. In other words, when our balance hits $1,000, we’re at “zero” and need to stop spending. Then we pull money from savings to make the account whole again. We really try to avoid “going into the buffer” if we can help it. However, it’s been harder and harder over the last couple years.

If we go into the buffer and pull from savings, then we also look to see where we overspent. Sometimes, there are just expenses that can’t be anticipated. If we remember that this happened last year, then we add the expense to our yearly expenses tracker and adjust our savings to that account.

There are other ways to give yourself warnings and avoid overspending, but this is what worked well for us. We originally had it set to a $500 buffer, but the mental accounting (and math) is much easier if we just set it at $1,000. If you don’t have an extra $1,000 and want to do the buffer, it’s okay. We didn’t at first either. Just focus on not getting to zero at the beginning and then you can adjust things along the way.

Setting Spending Goals and Limits

I know that lots of people think that budget is a bad word, but it’s not. You can call this a spending plan or whatever, but regardless of what you call it, you need a system to plan and track spending and saving. If you don’t, you’ll have a really hard time meeting your financial goals.

Make sure that you give yourself some grace and don’t beat yourself up too much. If there’s something you enjoy and you have the money, spend some money on it. However, everything needs to be in moderation.

If you really enjoy eating at a certain restaurant, that’s okay. Make room in your budget for it. You can make forced limits on this by using envelopes or even just buying a gift card with your monthly limit. Then once that money is gone, you’re done for the month.

Keep it Simple

I highly recommend that you don’t get too complex or granular with every single cent. First off, life is way too fluid to be able to do that without letting your money control everything you do. I’m not about that life.

I like to grab a coffee every now and then, but that comes out of my personal spending money unless we go as a family. I don’t set a category for Dunkin or Starbucks every month and try to track every penny. However, if I do see that I’m spending a lot there, I might make some changes.

Regardless, if it’s too complex, you won’t implement the budget and you’ll just be wasting your time.

Putting Your Budget into Action

It doesn’t matter how awesome your budget looks if you don’t use it. You must choose a system that you will use and follow! Our implementation is kind of a hybrid of methods.

We automate as much as possible (savings goals, retirement accounts, utilities, etc.). Then we pull cash out for groceries, entertainment, booze, personal spending money, and haircuts. Everything else we use the debit card for, but that really ends up being gas and household items (Amazon). This has evolved over the years.

Envelopes

Initially, we used envelopes exclusively. This was somewhat complex for us at the time because we were living in Germany. We had some envelopes for U.S. Dollars for on post spending and then envelopes with Euros for entertainment and beer at the Getränk (beer/drink store).

Automation

I am a huge believer in automation. I’m a natural spender, so if the money hits my account or enters my wallet, it’s going to get spent. My fix for that is to send everything to our retirement, college savings, vehicle fund, and other savings and expenses.

Budgeting Apps

We’ve used a lot of the more popular budgeting apps, but with so many things being purchased from the same place, it was difficult to track regardless. I could see that we bought stuff at Walmart but had no idea if that was groceries or something else.

In the end, we ended up overspending when we used budgeting apps and had no additional insights into exactly where it all went. When we switched back to cash, we were much more aware of how we spent our money.

Google Forms

We’ve played around with Google Forms, and this works well for some things and not for others. We have had great success using Google Forms to track our spending on trips. Read my article on Google Forms and listen to the podcast episode on this here.

Budget with Good Old Fashioned Excel Spreadsheets

At the end of the day, I find it hard to beat a good, old-fashioned spreadsheet (well, the modern version at least). We use spreadsheets for almost everything. As I mentioned, now we really only update this once a year or so.

We used to reconcile this every month, but I stopped doing that once we had everything automated and things were basically on autopilot. Regardless, we review and update the budget every single year.

When we update the budget, we go line by line and check to make sure the price and timing of each item hasn’t changed. We also scrub the checking account for any spending that isn’t captured on the spreadsheet.

You can download a copy of what we use (Budget 1) or another one that a good friend uses (Budget 2). Once again, no matter what you use, make sure it’s accurate and you’ll actually use it.

Be Honest with Yourself and Your Budget

Take a few minutes to understand your spending habits. There are several different ways to look at this. I typically use a broad generalization like spender and saver. However, there are many different things that play into this.

If you want to learn more about your habits around money, take the Klontz Money Script® Inventory-Revised (KMSI-R). It asks you questions about how you think about money and can help you think through how you think about money in general.

Once again, no need to get overly complicated here. What we’re really trying to uncover is what your natural tendencies around money are. If you are given a hundred dollars, what are you most likely to do with it? Would you save, invest, or spend the money?

Whatever you uncover, help use that to craft your budget and the systems to implement it. For example, my tendency is to spend or invest. Therefore, some of the money for our long-term goals is invested through dollar cost averaging. Not because it will earn me considerably more, but because I won’t feel any fears of missing out on gains.

Once again, this is personal to me and not necessarily a suggestion for you. My wife can’t stand the thought of losing money, so most of our money is in “safe” places like savings accounts or in our physical possession. You’ve got to learn what makes you feel better around money so you can create systems to help you do better with money.

Get Your Budget Started Now – Seriously, Right Now!

No matter what you do, at a minimum you need to schedule time on your calendar now to work on a budget. Don’t get all hyper about it and say you’ll spend an hour each day, you probably won’t. I think setting aside one hour each week until your budget is complete is more than enough.

Later, once you’ve got everything set up (maybe even automated), you might only need to look at your budget once a month or so. We rarely look at our budget anymore except for Money Day each year, if we have a big change like moving, or catch ourselves overspending.

Take the time to get some awareness around how and what you’re spending money on and set realistic goals for yourself. Ignoring the problem or “getting to it someday” is only going to make things worse. Get honest with yourself, make a plan, and use it to get yourself on track.