The word budget used to send off alarm bells in my mind and put me into stress mode. Let’s be honest, for most people anything to do with money can draw out all kinds of stressful thoughts and emotions and a general sense of overwhelm.
When it comes to stress, my tendency is to not think about the problem and put off dealing with difficult tasks. As a kid I would try to clean my room by shoving everything under the bed or in the closet (I never got away with it, but I always tried). Now that I’m a grown-up, sometimes it feels like little has changed. My first instinct when it comes to budgeting is to just not think about it. Instead, I’d rather shove it all into a mental closet, close the door, and say “there, all good!” Ha! If only life worked that way.
The idea of creating a budget can feel so daunting, but it doesn’t have to be that way. In this post I will walk you step by step through the process of how to make a budget that will you save money. Pretty soon you’ll be a budgeting professional.
Why Make A Budget?
I’m going to tell you a secret that people who are building wealth already know: having a budget which both you and your spouse agree on and stick to will not only lead you to financial freedom, it will also help you feel more free. This is true even if creating a budget forces you to confront mounting debt or less-than-desired monthly savings. I’ll explain:
Before we had a detailed budget with very specific categories (more on this in a bit) for our family I thought that we had a pretty good idea about how much we spent on what. Yet, there was always a sense of fear when it came to a bigger purchase that perhaps it wasn’t quite in our budget. Because we didn’t have a written-out budget it was impossible to say if such purchases really were in our budget or not. This lead to anxiety about our finances.
When we finally did make a budget we were able to see exactly where we were at in every category of spending. Even though some categories, such as the amount we put away monthly into savings, aren’t ideally what we wish them to be, at least we know for certain. This helps us better plan for the future, set our financial goals, and decide what extra purchases we can afford and what we should wait on.
Now, instead of worrying about what we are spending our money on and whether we should be spending it that way, we can focus our emotional/mental energies in other places and actually be more productive.
Also, when we do make an extra purchase or go out to eat we have confidence that those things are in our budget and have the freedom to truly enjoy them.
I’m Doing Well Financially. Do I Really Need A Budget?
Yes! Whether you make a lot of money and have no financial concerns whatsoever or are living paycheck to paycheck or are deep in debt, you need a budget.
Think of your budget as the plans to your financial “house”. What would happen if you started to build a house without using any plans? It wouldn’t matter if you had the highest quality materials or the very best construction workers or infinite time to complete the project. Without clear plans in place you would probably end up with a very strange, non-functional, and unstable house.
Or consider the stories of celebrities who at one time had millions of dollars but now are completely broke. I suspect in such cases those celebrities assumed they didn’t have to worry about a budget because they made so much money. However, money has a way of spending itself unless you keep careful track of it. It always amazes me how quickly the dollars and cents add up.
If you are doing well financially, that is wonderful! Creating a budget and sticking to it will give you peace of mind that you are staying on the right track while helping you to be intentional with your spending. That way you can save and/or give away even more.
We Are Struggling Financially. Won’t A Budget Just Be Depressing?
If you find that you are living paycheck to paycheck or even in debt, creating a budget will help you plan a course of action toward a better financial future. Sometimes that very first step of action is the hardest one.
I actually think there is more anxiety in not knowing exactly where you are at financially than in confronting it head-on, even if what you see in your budget isn’t pretty.
It’s impossible to solve a problem if you don’t know what the problem is.
The more specific you can be about problem spending areas, the easier it will be to find a solution. That is where creating a budget will help.
Know that you are not alone. There are many families who are or have been in your shoes.
I describe our family as one-income family living in a two-income society. This is by choice so that I can be home with our three children while they are young, but it still is hard and involves a lot of sacrifice and creativity.
I wish that everyone who wanted to stay home with their children could do so, but many families who would like to have a parent at home are intimidated by the financial aspect. In most cases I believe it is very doable, but you have to have a good working budget in place.
Whether you are doing great financially, struggling, or planning to move to one income, having a budget in place is absolutely necessary.
Why We Use A Word Document To Make Our Family Budget
There are many online resources, both computer-based and app-based, to help you make a budget. I’ll show you a few below. However, I’ve found that using the old-fashioned method of a Word document is the easiest, most concise, and least frustrating way to make a budget for our family.
I have tried several programs and apps in the past and been disappointed. For example, one program that synced with our bank accounts would sometimes list a single purchase twice and other times wouldn’t record a purchase at all. Not very helpful when trying to stick to a budget! While that was several years ago, I have read of similar issues in reviews of current programs and apps.
Like all technology, programs and apps are subject to bugs and may work perfectly for most people but not for everyone depending on the particular combination of computer/phone/bank account/ you use.
We use Microsoft Word to make our budget. Word won’t do that math for you or automatically generate fancy tables and graphs like some budgeting programs will do, but it is reliable and you have complete control over how your budget is organized. Also, you don’t have to expend time and energy learning how to navigate a program.
I’ve created a simple but inviting Word template you can download and edit to suit your family and your budget. To access the 2018 template click this link: 2018 Budget Template.
I included as many categories as I could, but you may need to add or delete some to personalize it to your family.
If you have a spouse, I highly recommend doing this together so that you’re both on the same page.
It’s easy to share this document so that both you and your spouse have access to it. To do this, save the Word document to Google Drive or Microsoft OneNote.
If using Google Drive, first create a folder that you’d like to share with your spouse. You might call it ‘finances’ or ‘2017 budget’, for example. Then save your document to that specific folder in Google Drive. Now you can go into your Google Drive and select that folder, click on the share icon, and type in the email address of the person you want to share it with. It’s that easy.
The process for sharing in OneNote is similar. After saving your document to OneNote, go into OneNote and under ‘File’ select ‘Share’. Then type in the email address of the person you want to share with and select the ‘edit’ option.
Excel Budget Templates
If you prefer to use a budgeting program to make a budget there are several options. If you simply want something to automatically do that math for you I suggest using an Excel spreadsheet. Some Excel budget templates even incorporate graphs and charts. You can make your own or download a pre-made template (but do the download…seriously, it’s so much easier!)
Excel is a powerful program with many great features, but I don’t use it very often because I’m just not that familiar with it and find it’s many functions a little intimidating. But if you know Excel, this might be a great option for you. If you don’t have Excel you can still access .xlsx and .xltx format (both used by Excel) by using Google Docs. Here are a few templates to get you started.
- This Simple Budget template is very straightforward. On the left side you set your categories (housing, utilities, groceries, entertainment, etc.). Then on the right side you enter the category and specific description for each expense and it will add that value directly into the specific category it belongs in.
- This Family Budget template has helpful visuals and graphics and will track your monthly spending alongside your budget. In addition to the bar graphs, as you enter values for your expenses it uses color coded circles to show you whether you were over, under, or on target compared to your budget.
- This Household Monthly Budget template is more complex but has nice visuals and detailed categories.
Budgeting Software and Apps
Another option is to use computer software and/or a mobile app. As I’ve mentioned, these are buggy for some but work well for many people.
- Mint has been around for a while and many users claim to enjoy its features. In addition to helping you make a budget, you can also pay your bills and access your credit score. Mint is free and compatible with your computer, android, or iPhone.
- EveryDollar is program created by financial expert and mentor Dave Ramsey. This program has both a free and paid version and can be accessed by computer, android, or iPhone. With the free version you’ll be able to create your budget and view helpful visuals. The paid version ($99/year) will sync to your bank accounts.
- YouNeedABudget, known as YNAB, promises to help users stop living from paycheck to paycheck. It is also accessible by computer, android, and iPhone. Unlike EveryDollar it is a paid service, free for the first 34 days then $6.99/month. However they claim to offer a full refund no questions asked if you are dissatisfied at any time. YNAB will sync to your bank accounts and provide updates on your spending and savings. The paid version of YNAB was recently released so you can still access the free version of the app called YNAB Classic, however it appears that at some point they will likely withdraw support for the free version.
- Honeydue is a newer app based on the idea of helping couples manage their money together. You can even send your partner an emoji or thumbs up to encourage them in their spending choices. This app is free and available for android and iPhone, but is not accessible on the computer.
- Quicken has long set the standard for money-management software. The basic version is $34.99/year and will help you create a budget, keep track of expenses, and sync to your bank accounts. The premier version at $74.99/year will allow you to pay your bills from the program and organize data for tax preparation. All versions come with access to a mobile app.
- AceMoney Lite has many similar features to Quicken but is free (they also have a paid version).
How Do I Decide Which Option To Use?
When it comes to deciding which method is best for you to make a budget (Word document, Excel spreadsheet, or computer program/app) consider what is most important to you:
- Cost: if this is your number one criteria, then start with one of the free options and see if that works for you before considering a paid option.
- Mobile accessibility: if you need to be able to access your budget on your mobile device then you should consider using one of the software programs. All of them are mobile accessible.
- Ease of use: do you have time to learn a new program and/or set one up by entering bank account information? If not start with the Word document. It is by far the simplest option.
- Ability to share/coordinate with others: The Honeydue app seems to be specifically designed for use by couples. EveryDollar also allows two users to share an account. With the other programs it seems that two people would need to share login information in order to both access the account. Word documents and Excel spreadsheets can be shared through Google Docs or OneNote.
- Ability to keep track of expenses as they occur: both Honeydue and Mint are free options that will link to your bank accounts. Paid options will all link to your bank account if your bank supports that particular program.
- Ability to pay bills: With the exception of Mint, only the paid options allow you to pay bills from the program.
The #1 Rule In Budget-Making
The number one rule we use in making our budget is this: plan to save. You know what they say, right? Couples who save together, stay together. Oh, that’s not really a thing? Well perhaps it should be, ha! Especially considering that money is a topic many couples tend to fight about.
If you don’t plan to save, it simply won’t happen.
As I mentioned earlier, money has a funny way of spending itself when you’re not looking. It’s so easy to spend a few dollars here and a few dollars there and think it’s okay because they’re just ‘small’ purchases. However, those dollars and cents add up so quickly and pretty soon you’ve spent your month’s budget for X category with too many days in the month left to go.
Similar to the way a gas expands to the size of the container it’s in, your spending will naturally expand to the limits you’ve set by making a budget. If you don’t set any limits, your spending can easily exceed your income, leading to debt.
Having a budget in place helps you spend with purpose.
Set Your Future Goals
Before actually setting all the categories of your budget, take time sit down with your spouse (hey, go ahead make a date out of it!) and talk through exactly what your financial goals are. Setting your long-term goals will help you determine specific amounts for different categories of spending.
If you are living paycheck to paycheck, you might consider your primary goal to be setting aside an emergency savings fund. This way an unexpected expense or loss of a job won’t derail you financially. You’ll have something to fall back on.
Commit to saving your first $100. One easy way to do this is to save $10/month (about the cost of two trips to Starbucks) for 10 months. Once you’ve achieved $100 in savings, then set your goal to $1000, etc., etc. Like many things in life, it is the first steps in creating new savings habits that are the most difficult. If you can save $100, you can save $1000, and so on.
Be brave. Take those first steps and it will become easier and easier to move toward better financial health. You can do it and you will be so glad you did.
Once you have an emergency savings fund you can consider other possible long-term goals:
- Is your primary goal to get out of debt quickly? This is a great priority because once you’ve paid down extra debts such as credit card debt and student loans, that money is freed up for other uses and you’re no longer paying interest.
- Is your primary goal to be able to afford to have one parent stay at home with your kids? Planning ahead by having a budget in place and money in savings will give you peace of mind when you make the move to one income.
- Perhaps your primary goal is to be able to retire early. You will want to focus your budget around your savings and investments.
Deciding How Much to Save and How Much to Spend
A good starting place for figuring out how much to save and spend is the 50/30/20 rule:
- 50% of your budget goes to needs (essential living expenses such as housing, groceries, utilities, car payment, etc.). The ‘needs’ category includes anything that not having would severely impact your quality of life. Minimum payments on credit cards and loans (mortgage, car, student loans) are included in this category because not making those minimum payments would impact your credit score and possibly lead to more debt.
- 30% goes toward wants (for example: Netflix subscription, lattes from Starbucks, new curtains, those cute boots you’ve been eyeing on Amazon, etc.).
- 20% goes toward savings and debt repayment (emergency savings fund, retirement savings, extra payments toward your mortgage or other debts, etc.).
Keep in mind the 50/30/20 plan in just a starting place for thinking about your budget. Your family’s needs, priorities, and level of income may require a different breakdown of saving/spending percentages.
Deciding to make saving a regular part of your monthly budget changes your approach to spending. Instead of just saving the ‘leftover’ money at the end of the month, you set aside what you want to save first and then limit your spending based on what’s left.
Let’s Make a Budget: Hash Out Your Remaining Categories
Let’s get started putting your money to work by giving every single dollar a job. The method we use to make a budget for our family is called zero dollar budgeting. Basically, you start with your monthly income after taxes and then deduct each category of spending until you reach 0.
Grab whichever budgeting tool you decided to use (Word doc, Excel template, or app/program) and let’s get down to work. It won’t take too long, I promise!
The first thing you want to do is figure out exactly what your total monthly income is after taxes are taken out.
Next, determine what benefits (such as medical and dental insurance, life insurance, health savings account, etc.) have also been taken out of your paycheck before it gets to your bank account. Since these items are already paid for before you see your paycheck you don’t need to include them in your budget.
However, if you like to see the whole picture you can use an alternate method where you start with your total monthly income PRE-tax and benefits and then include those items (taxes and benefits) as categories in your budget. Use whichever approach you feel most comfortable with.
At this point you will want to carefully go through every single category of recurring spending/saving so that every bill you pay and every penny you put into savings is accounted for. Look through your credit card statements and checking/savings accounts deductions to make sure that you’ve included every item.
It’s easy to forget small recurring charges such as a Netflix or Costco membership. Even though those seem like small amounts, they add up to much larger amounts and you’ll want to include them in your budget.
For items that we pay only annually or semi-annually (such as car/home insurance and our Costco membership) we divide that total amount over 12 months and have a categories in our monthly budget for them.
If you are having a hard time thinking of all the places your money goes to, take a look at the Word budget template above. Even if you don’t want to use it as your method of budget-keeping it will help you think through all your budget categories.
Once you have set all your categories of spending and saving make sure when you subtract them all from your monthly income you reach 0. OR that when you add them all up you reach your monthly income number.
And that is how you make a budget! Whew. Don’t you feel better already?
If You Need More In-Depth Help With Your Finances
Head over to The Budget Binder by Caroline Vencil for 82 pages of printables you can use to take a comprehensive look at your budget and get your finances under controlI am not a financial expert and this article is written out of my personal experience with managing our household finances together with my husband. If you are feeling overwhelmed by your finances consider finding a financial adviser in your area and using their expertise to help you and your spouse make a plan for getting out of debt and building your wealth.
I also recommend checking out Dave Ramsey’s class Financial Peace University. This class has helped thousands of people gain control over their finances. He and his wife have a pretty incredible personal story of making their way out of deep personal debt and this is what inspired him to help others with their finances.
There are so, so many incredible stories of people digging themselves out of debt. If you are feeling overwhelmed, take a deep breath and know that there is hope. Check out these 10 amazing getting-out-of-debt stories over at the blog Affording Motherhood and be encouraged!
The fact that you are here reading this article means that you’ve already done one of the hardest things – acknowledging the problem. Start with baby steps and use those to build momentum. Give yourself grace. Set small goals which are easily achieved and work your way up to larger goals.
You Made A Budget! Now What? Next Steps…
Congratulations! You made a budget and are well on your way to better financial management. Creating a budget is one half of the equation. The other half is keeping track of your actual expenses every month to make sure that you are staying within the limits for each category. Hop on over to my post How to Track Your Monthly Expenses To Save $100s (Or More) Every Year and learn how easy it is to make sure you stay on-budget each month.
After your budget and expense-tracking methods are in place then you can begin to focus on ways to save money by reducing your expenses and, if needed, earning income from home (even if you’re a busy mom).
Remember to redo your budget anytime you have a change in income or a change to one of your budget categories. Perhaps you just a raise – time to redo your budget. Or perhaps your energy company raised their rates and your energy bill has gone up – time to redo your budget and make sure that all your categories add up to your total income.
Also, it might be a good time to look at your federal and state tax withholdings to make sure they are set correctly. As nice as it is to get a big refund at tax time, you’re likely to use that money more wisely if it is part of your monthly income and budget.
I’d love to hear from you! How do you feel about budgeting? Love it? Hate it? Leave a comment below.
Thanks SO much for reading!