When it comes to building an effective budget, I don't think there is one right way for everyone. We all have different incomes, expenses, spending habits and circumstances in general. It might take a couple tries to figure out what works for you. I tried out a few different things before I discovered a budget that really worked for me. After learning what worked and what didn't, I decided to put together a little step-by-step guide that might help others with similar situations.
Step 1: Start tracking your expenses. Before you can set up a Big Girl Budget, you have to know where your money is going. There are tons of ways to do this, but I found that a good ole Excel spreadsheet works best for me. I started with two categories: Essentials and Nonessentials. Pretty simple. I also included a column for any income I had. Within those categories, I included amount spent, place of purchase, date and means of purchase (for example, did I use a credit card, cash or debit card).
Step 2: Figure out your weaknesses. Most people generally know what areas they need to work on when it comes to extraneous spending (hello, dress addiction), but it really helps to see it all written out in black and white. You've heard before that small purchases here and there really add up over time, and it's so true. Look through your last month of tracked purchases and figure out where you are spending the most money, then decide if it is something that can be cut out of your budget.
Step 3: Start testing a new budget. If you're not sure where to start when it comes to making a budget, there are thousands of online resources that can guide you. I've taken bits and pieces from different places in the past, but the one I've found works best for me is the 50-30-20 budget. 50% of your monthly income (after taxes) goes toward fixed expenses like housing, minimum debt payments, groceries, insurance and gas. 30% goes toward variable expenses like eating out, shopping and entertainment. The last 20% goes toward financial goals, such as extra debt payments and savings.
This is the strategy that has been working for me, but it might not necessarily be your best budget, so you might have to try out a few different ones for a couple months to see what works and what doesn't.
Step 4: Cut extra costs where you can. You might think this one would fit better before Step 3, but here's why I disagree: You have to find a successful budget for your lifestyle before you can determine how that lifestyle might need to change. Once you have designated exactly where you money is going, you can decide where it might be okay to drop some expenses and pick up others. For example, once I got my budget up and running, I realized I had room to put up a little extra money toward savings without having to drop my gym membership. If I had gone through and cut all "unnecessary" expenses before I made my budget, I probably would have dropped the gym and later realized I could actually afford it without cutting into my savings plan.
Step 5: Follow your budget. This one sounds like a no-brainer, but you might be surprised how easy it is to watch those numbers add up. Back before I had a full-time job and was bringing in a very unsteady income, my spending seemed to go over my allotted "budgets" in every category. A budget is only successful when it is followed. So, if you stay under your numbers, you're doing very well and might even be able to increase your savings input or debt payments — or maybe even set it aside for a travel fund.
I hope this helps any of you who might be struggling to make your own budgets. Let me know if you have questions or if you have any other ideas you'd like me to cover in another post!
Do you use a budget to track your expenses? What has worked best for you? What hasn't worked? Share your comments below! I'd love to hear...
P.S. how to be productive