Creating a Budget

Budgeting is one of those things that everyone has heard they should do, but it can be hard to actually sit down to create one, not to mention sticking to it afterwards!

Being an organizer and an accountant naturally led me to making a budget as soon as I started living on my own. Everyone approaches budgets a little differently, but I’ll try provide you with a few getting started tips for creating an effective budget for yourself.

I think of budgeting categories in levels of importance (kind of like Maslow’s hierarchy of needs...but different). I find that it is easiest to budget on a monthly basis, as most bills are paid once a month, so if you get paid more than once a month, make sure to include the total you receive in an average four-week month. Additionally, for any of the expenses below that you pay less than monthly, spread the cost over the months the payment covers so that you can build it into your budget without taking an unexpected hit when it is paid.

1. Start with your after-tax salary, that is the cash you actually receive each month. Generally this is just what you get paid from your employment, but if you have regular and reliable income from another source, you can include that too. I would be cautious of including any income that is unpredictable, as you don’t want to assume that money will be available for paying your bills.

2. Carve out the appropriate amounts to cover your non-negotiable necessities. These include rent/mortgage, car/loan payments, car insurance, utilities (including cell phone and internet in my opinion, but maybe not Cable TV), healthcare (such as out-of-pocket costs for ongoing medications), transportation (gas, rideshare, or public transportation costs of commuting and getting around), and food (this is a tricky budget category - it took me about a year before I could really determine a pattern in my food spending).

3. Next, break out savings for unexpected car repairs, non-routine healthcare expenses, and clothes, as well as charges for non-essential services and subscriptions (for me, this includes streaming services, newspaper/magazine subscriptions, and online services such as my password manager).

4. Savings is next! Start building an emergency cushion by setting aside some money every month that will then be available should you ever have a financial emergency. Also, specifically earmark money for future travel or large purchases, such as a car or house. Then, the hard part, DO NOT spend this money on other things!

5. Finally, the fun stuff! Create buckets for gifts, charitable giving, and entertainment! My entertainment category is pretty much a catch-all, so feel free to break it down further if you think it would be helpful.

Get creative! Your budget, your categories. Maybe you have unique types of costs you want to track separately, or maybe you would prefer more detail in your budget. Maybe your hierarchy of what is most crucial differs from mine. Don’t feel the need to be limited to my categories. A budget is most useful when it accurately reflects your life and spending habits. If you create a budget based on how you think should should be spending your money, you will find yourself frequently straying from your budget. It’s ok to make spending (or rather, savings) goals, but try to keep your overall budget realistic to your lifestyle.

It may take you several months to figure out the best balance of funds in each category. If you haven’t been tracking your spending in the past, it might take you a few months of collecting data before you can determine solid budget numbers.

Once you create a budget, you will need to decide how flexible you want it to be. With rent, for example, there isn’t any flexibility, but with your discretionary expenses you will need to decide ahead if you are willing to move funds between your categories as needed, or if you want to try to stick to what you have specifically budgeted. Some people are comfortable using it as a general guideline, prompting yourself to at least give more serious thought to overspending, while others will find that sticking very closely to the budget works best for them.

Have you ever tried to create an actual budget for yourself? What did you prioritize? Were you able to stick to the budget or did you find yourself repeatedly veering away from it?