Easy Personal Budgeting Tips

Budgeting is vital to any great financial plan. Every time I say the word ‘budget’, people tend to give me this weird scared look or they become completely glossed over. However, it is still extremely important to know exactly where your money is going no matter if you are living paycheck to paycheck or making the big bucks. When you don't know where your money is going, it's much more difficult to take control over it.

The word "budget" tends to make people feel like they are being restricted with their own money. Or taking out all the things in life that make it fun. That's not necessarily true. A budget is there to help you understand what money you have, where you spend it intentionally and then making an informed plan on how to allocate your money best.

Here is everything you need to know to help ease you into creating and making a budget.

1. Be Realistic with your Goals

One thing no one seems to talk about is that this process will not change your life overnight, but it can change your life in the long run. The reason you have gone through all the hassle of researching how to create the perfect budget is because you are in a place where you are in control of your finances instead of your finances controlling you. This means you need to be realistic with yourself and your goals.

While having big ideas and plans is amazing, do not get me wrong, sometimes you need to check your reality and your abilities. I only bring this up because I am the type of person who can go hard for about a week to a month and then peter off if I do not feel like there is progress or that life swallowed me whole and I go back to familiar ways. Any time I try to make progress, life will throw 10 obstacles in my way. It is like science or something. This just means I must work harder, be more real with myself on my goals and ambitions and be kind to myself when I need to take a step back.

If this sounds like you too, setting realistic, attainable and manageable goals is imperative to creating and succeeding at a budget. Everyone WANTS to be rich. However, it's the hard work, grit and goals that builds wealth.

2. Identify your Income and Expenses

Now that you have your goals laid out, it is time to evaluate what you have going on. Figure out where your income streams are coming from, any full time, part time or side hustle jobs. Get a good idea of how much you receive monthly from each. If you are married or have a partner who shares the bills with you, include their income as well.

After you complete the income, it is time to start listing what your expenses are and how much you spend a month. While you want it to be accurate you do not need to be to the penny, unless you have no idea how much you are currently spending. If that is the case, go back through your last three months of receipts, bank statements, credit card statements and bills and start calculating everything up. And when I say everything, I mean everything. If you spent money on it, it needs to be included.

While you are listing your expenses, start figuring out your categories. Categories are ways to identify your spending habits with a general term. So instead of listing how much you spent at each place, you list what you spent. More on this in the next step.

I recommend tracking both income and expenses by the month only because that is how the majority of bills in America are paid. So tracking by month can make things simpler, but if you feel like your life is based on a different basis – do that!

This is when you get to do a deep dive into your current spending habits and see where your money is going. There are many apps to help you with this. Ones like Dollarbird, Mint, PocketGuard, YNAB, Personal Capital... the list is endless. Go through the features and see which one aligns best with your needs and one that will best support you in the way you work.

3. Track, Identify, Separate

You are going to think I am a broken record by the end of this – but in order to make this work for you, you need to track EVERYTHING. If it has to deal with money, it needs to be tracked. I bought a $0.10 light holder clip at a thrift store for our wedding and you best believe I asked for a receipt and you best believe she gave me the weirdest look.

That is right, I am tracking down to a ten cent item. However, for a second, I want to loop back to my point number one, be realistic and attainable. If you think tracking down to a ten cent cash transaction will cause you to throw your hands in the air and quit, don’t be a crazy money lady like I am.

But, if you used a card that transaction will automatically be tracked for you and might be an easy way to help you still track the money without doing more work.

The flip side of tracking is categorizing. It is important to categorize your expenses based on what you bought and not where you bought it. For example, let us say you spent $100 at Fred Meyers; $50 on groceries, $35 on shoes and $15 on lawn care items. Yes, you spent $100 at Fred Meyers but now that you see the breakdown, it would not properly show where your money is being spent if you do not break it out.

So, for the above example, I would put $50 to Groceries, $35 to Clothing and the $15 to either Home Repairs and Maintenance. The goal with categorizing is that it needs to be broad but specific. If you want to know how much you spent, and budget for, painting supplies because a good chunk of your money goes there, create a category! However, if you occasionally buy paint, but also buy paper, glue, ribbons, scrapbooks, yarn and whatever else you find at Michael’s, create an Arts and Crafts category or Hobby category.

I have to say this, because I am a bookkeeper by trade, please do not ever create or use a Miscellaneous category. When looking at your reports to see where your money went, what are you going to do with the information that it will present you if there is money in a Misc account? Nothing, that is what. I would rather see excessively detailed accounts over a miscellaneous account.

In step two, you took the past three months of your spending habits and created an outline of what you have been spending. With the help of the first part of step three, you created the categories you needed. Now it is time to look at the whole picture it is giving you and reflect on what is a need and what is a want. This is so you have an idea of what is vital and what is not. The goal here is not to alienate yourself and feel bad about what you have spent money on but more to empower you in knowing what is truly important to you.

My last tip on categorizing is to be very careful when it comes to food. Food you purchase at a grocery store is very different than food purchased at a restaurant and I highly recommend creating two different accounts. Generally speaking, grocery store food goes into Groceries category and restaurant food goes into a Meals and Entertainment category. Other things that go into the Meals and Entertainment would be movie tickets, ball games and going to down to the 7-11 with the kids on a hot day for some Icee’s. Again, the only time I would recommend breaking out these different types is if you are a die-hard moviegoer or go to as many games as you can schedule. In those instances, I would recommend breaking out those categories.

4. Design your Budget

Now you have all your facts laid before you and you can start to design your budget. You first need to figure out why you are creating this budget in the first place. A few of the most common reasons are – vacation, wedding, want a savings, pay off credit cards, pay off student loans and saving for retirement. Whatever your reason may be, that needs to be your second priority. I know that sounds silly, but your essentials will always be your first priority. If you found a way to live for free without being at your parents, please let me know! I am all ears.

The goal of this budget is to get you where you want to be. If you choose to prioritize non essential items, like going out for coffee every day, over your goal, it might take you longer to achieve. Not to say that you can’t have coffee every day, but making it at home will save you so much money. Also, not to say that you can’t go out to coffee at all. But again, it matters where your priorities lie. If you choose to save first, and then spend, your future will thank you and you won’t even remember you did not go out for coffee. You might even be proud of yourself for breaking the habit!!

Do not save what is left after spending; instead spend what is left after saving –Warren Buffet

You know what your spending habits are, you know what your categories are and you know what your goals are. It is now time to take that information and mold it into a workable budget. Take your income, budget out your first priorities – rent, prescriptions, utilities, critter kibble . Basically, anything that is essential that you do not have any control over in the present or any ability to quickly change.

Now, look at the categories you have left. Choose your goal first and apply the amount you want to that category. Everything that is left (income minus essentials minus goal) needs to be distributed between everything else; food, insurance, subscriptions, internet, meals and entertainment, health and beauty, etc.

If everything worked to your liking, great! Move on.

However, once most of us look at our finances like this, we start to see why we have issues with money management and got into the current situation. If you do not like what you are seeing or feel like the numbers are not working out, see what you can cut and what is no longer essential.

Start by looking at your monthly subscriptions. Do you need Netflix, Hulu, Disney+ and Amazon Prime Video? Look at your internet plan, while there are not many companies out there, there might still be a cheaper but equally compatible option. Check out your Meals and Entertainment and try to cut down the amount spent there. One meal for one human can be anywhere from $5-$25. That amount reallocated to groceries will not only last you longer than one meal, but that also means it will help you save.

In the end, the amount coming in needs to equal the amount distributed between your categories.

5. Put your Plan into Action

You have now hand-crafted your personalized budget to your exact needs and wants. That’s amazing! I definitely find that first hurdle to be the hardest because it is the most overwhelming. You took that mess, organized it, analyzed it and created a well thought out plan.

Again, that’s amazing! I'm celebrating you!!

Now it is time to put your money where your hard work designated it.

Picking the right tool is important. You want to make sure that it has everything you want/need and something that will be easy to manage for your daily life. Choose whatever will help you stay within your limits. Pick a tool that will help you hold yourself accountable. If you do not think seeing the numbers on an app will keep you within your budget, put cash in designated envelopes for each category and only use that for your non-essentials.

A quick tip to help you succeed – your first month will probably not go as planned. And that is okay! Remember it is okay to forgive yourself. This is a brand new way of life you are trying to conquer so it is important that you, again, make it attainable and reasonable. Rework your budget every month, the hard work is already over of gathering all your data and figuring out your goals. Reworking the numbers is the easy part.

That first month, be easy on yourself. Don’t try and take out everything that makes life fun. That is the first step to failure, for most people. If you are someone who is all or nothing – get it! Cut out the excess to reach your goals! However, the rest of us need baby steps. Do a less conservative budget at first and as months go on, tighten it up.

6. Surprise Expenses

The one thing that, without fail, blows up any budget…the holiday season.

Ugh.

There really is not much you can do to help get around it. It is what it is. However, what you can do is mitigate the damage by planning ahead. Most cannot and do not do their shopping throughout the year to help ease the financial blow that time of year can bring, unless you are a crazy man like Al Roker. But I do have a little tip to help you keep your budget on track and even budget for that time of year!

Every month, choose a retailer that you know you will do your shopping at and buy a gift card. Then, when that time of year rolls around, only use those gift cards to fund your festivities. This will keep you in budget and on track without stressing you out. Just also be mindful of your grocery bill. If you host a lot, make sure to also include your local grocery store in your gift card buying.

7. Look to the Future

If you have worked through all those steps, you should really be proud of yourself! Everyone makes a budget sound so easy, but the reality is that it is a lot of work to create one and a lot of hard work to change your spending habits. Always keep in mind why you are doing this because that always helps when all you want to do is go out to dinner. When you are on that dream vacation, you are not going to remember that Tuesday you wanted Subway five months back. But you will remember that vacation the rest of your life.

If it has been a few months, and you still find your budget complicated, get different tools, look at what you are doing and change it. Once you figure out your flow, it really should be no more than 5-10 minutes out of your day to maintain. Budgets are there to help you create reasonable and simple spending habits to get you on the right financial path and empower you with your own money.