This week at Clo Bare, we’re going to talk about how to create a budget. It’s simple, it’s straightforward and I’ll even give you links to download the actual Google docs spreadsheet (yes, I’m ancient and I use a spreadsheet, but at least it’s online!) I use every day. But before we dive into that let’s talk a little about why it’s so important to create a budget and some of the myths surrounding how to create a budget.
Why It’s Important to Create a Budget
If personal finance and not worrying about money is NOT important to you, creating a budget is not important. You can pass on this post.
BUT. If you’d like to stop living paycheck to paycheck, or if you spend the first week after receiving a paycheck wondering where all your money went and how the FUCK you’re going to survive until next payday– well. Maybe it’s time to consider making a budget.
Wouldn’t it be nice to not have to worry about how you’re going to pay for everything between each pay period? Wouldn’t it be nice to, I don’t know, maybe save some money or pay off your debt early? Or maybe it would be awesome to prepare for something awesome like buying a pet pig or going on vacation.
Well, then, unless you’re making SO MUCH MONEY THAT THE WORLD JUST SEEMS TO BE THROWING YOU BUCKETS OF MONEY AND YOU JUST DON’T KNOW WHAT TO DO WITH IT– you need to budget. And even if you have buckets of money, I still recommend budgeting.
Why? Well because of peace.
The peace of mind that comes with having control over my finances is priceless. I no longer worry about whether or not I have enough money in the bank to cover emergency expenses. I don’t stay up at night calculating how I’m going to stretch the last $64 in my checking account until next Friday. And I don’t wonder how I’ll ever be able to take a break from work because I have so much debt and no control over my spending.
And you know those horrible things called student loans that are weighing down on our entire millennial generation? I feel like I have control over those now. Because I have a plan and goals, I no longer feel like my student loan debt is a beast that will never be tamed.
Budgeting Reduces Anxiety
Through budgeting and taking control of my money, I feel like I have so much more control over my whole life.
That brings me endless amounts of peace, reduces my anxiety, and gives me the kind of hope and freedom I need to dream big for other areas of my life.
Budgeting, in addition to therapy and other forms of real self-care, has changed my life in a seriously big way, and it’s something we can all do to help reduce anxiety in our daily lives.
The amount of calm and control I feel since having started a budget and actually sticking to it is well worth the time and energy I’ve put into it. And that is why I want to share this simple post on how to create a budget.
Now, before we dive into how to actually go about creating a budget, I feel it’s important to address some of the budgeting myths I’ve heard when it comes to creating a budget.
Myths Surrounding How to Create a Budget
There are lots of different excuses, I mean myths, I’ve heard about why people decide to not budget and I want to break a few down.
1. I don’t have time to create a budget.
The hardest part is the first time you create a budget. After that, it’s slight adjustments to each budgeting period and it gets easier and easier. I spend a total of five minute creating my budget each period.
Not having a budget, for me, equals much more than five minutes worrying and checking if my student loan payment has already come out or if I have that extra $20 to spend on lunch or panic transferring money from one account to another because I somehow over-drafted. Putting in a tiny amount of work in the beginning saves a whole lot of time in the long run.
2. I don’t want to spend that much time thinking about my money.
How much time do you spend worrying about your money? Do you spend time debating on whether or not you should make a purchase? How much time do you spend anxiously checking if certain things have hit your account or not? Before I started budgeting I wasted a lot of head-space worrying about money and since budgeting, even though I think about money a lot, it’s in a completely different way.
Now when I think about money, I think about how I can spend less, how I can save more, and how I can make my money work for me in the future once I have all my debt paid off. Not spending five minutes intentionally thinking about money each week and not checking the budget and tracking leads to me spending WAY more time thinking about what I don’t know about my money.
3. Budgets are way too restrictive.
Not if you’re budgeting correctly. It’s important to find the balance between too restrictive and too loose. Luckily, you don’t have to get it right all at once.
Over the first couple months of budgeting, you’ll start adjusting according to how your budgeting goes. For example, if you find that every month you’re going over in a certain category like groceries, you know that you’ve set an unrealistic number for yourself. It is unrealistic to expect that you’ll go from spending $150+ a week on groceries and then immediately start spending $50 a week. Tailor it to what makes sense for you without being too restrictive. If you’re used to spending $150 a week, try to see what it’s like spending $125.
If that goes well, great! Now try $110 a week. Too restrictive and you end up blowing it by $40 because you entered the “FUCK IT” mindset? Then you know that setting your budget higher will actually help you spend less and you’ve found your happy spot somewhere between $110 and $125.
For me, I feel budgets are in a way less restrictive because I’m more at ease spending money when I know it fits into the budget. Because it’s in the budget, when I spend, I have nothing to feel guilty or stressed or worried about.
4. My income is different every month so I can’t really budget.
I find this to be such an interesting argument because budgets are not about what you make, they are about what you spend. It’s a spending plan for the money that you bring in, so if you’re bringing in money or living off of savings, it really shouldn’t matter. I budget based off each of my paychecks and my expenses don’t change all that much.
However, if one month I have a drastically different paycheck or no paycheck, I will still have a budget and a stricter one at that. If you know what you generally spend money each month, you can still make a budget. If you know there are certain times of the year that you have more work and a higher paycheck, you know some of your budget goals need to include saving for the months where your paycheck isn’t high enough to cover your expenses.
Budgets are not meant to be static– they shouldn’t be the same every time. That’s not realistic. They are meant to be flexible and change with your month so that it fits to your life in any given month or two week period or whatever schedule it is that you get paid on.
5. Clo Bare, I have no fucking idea how to create a budget so I just close my eyes, spend, cross my fingers, and hope it works out. Plus, budgeting sounds awful and I don’t want to live off of beans and rice.
FEAR NOT, READ ON! But also, I get it. I’ve been there and I also just didn’t want to know or deal with budgeting. It sounded like a pain in the ass and I was never really good at budgeting until I had a goal in mind. Now that I have actual personal finance goals? Budgeting is much easier and I actually love creating and writing my budget each pay period.
So now that we have the myths out of the way, let’s talk about how to make a budget. I’m weirdly excited about this because I freaking love budgeting and the feelings of control (MWAHAHAHAHAHA) I get by simply creating a budget.
So let’s get to it!
How to Create a Budget
1. Set a damn goal.
It’s really hard to stay motivated or even give a shit about the budget you created if you have no goals.
I don’t care what your goals are but it has to be something significant to you. That’s the beautiful thing about personal finance– it’s super fucking personal.
Maybe you want to save up to buy a unicorn. Perhaps you want to pay off your car. Maybe you want to save up $10k and travel around the world for six months.
Whatever it is you want to do, write it down. Make a plan. And remember that budgeting will actually help you realize this plan, however crazy it may seem.
Right now, my BIG goal is to pay off my student loans before I’m 33. My stretch goal is to pay them off when I’m 30.
2. Set small goals to get you to that goal.
This is equally as important as step number one because if your goal is HUGE (like saving for a down payment on a house or becoming a millionaire before 30), you’re going to want to set small goals to keep you motivated along the way.
It’s hard to stay motivated on a 20-year plan to financial independence, but it’s challenging and exciting to keep focused on those small milestones like saving $10k in five months or paying oof $5k in debt in three months.
Right now, my small goals include having $10k saved by September 2019 and I’m currently (counting a recent investment) at $8.5k which means I need to save $1.5k in August.
3. Start tracking everything you spend.
Do this at least for two weeks but I recommend a month so you know everything you spent money on.
I know this probably sounds crazy if you’ve never done it before but it is an absolutely essential part of the process. You cannot form an accurate and useful budget if you have no idea what you spend you money on each month.
I did this in August last year, and I’ve been tracking everything I spend ever since. And you know what? It’s not as bad as I thought it’d be. Now it’s just second nature but it holds me accountable and keeps me on track. You don’t have to track everything you spend if you do something like the envelope method where you pay for everything in cash out of envelopes (See article from Dave Ramsey on the Envelope Method, my very first budgeting technique when I was a wee college graduate), but I like using credit cards (and paying them off IMMEDIATELY) because I like free money.
4. Create Categories
At the end of your month of tracking, take a look at all your spending and see if certain things fall into certain buckets. You can color coat things that are similar or Google different budget categories, or you can even start with what I use. My categories are:
- Entertainment: this includes eating out
- Personal: anything from beauty to dates. Personal can be whatever you need but it’s personal care and dating for me
- Home: anything for the home, including rent
- Clo Bare: anything to do with Clo Bare, from podcasting equipment to website hosting to social promotion
- Transportation: all things transportation– gas, Ubers, car insurance, public transportation
- Groceries: self-explanatory
- Utilities/Cell Phone: Apartment utilities and cell phone!
- Debt: I like keeping track of how much I put on debt each month and working the extra payments into my budget helps me to make sure I’m sticking to my plan of paying off almost $2k in debt each month. This includes student loans, car debt, credit card, etc.
- Travel: Sometimes I budget for this if I know I have something coming up. It includes extra gas for long car trips or money for flights in the far flung future.
Why create categories instead of lumping all your money into one bucket?
Well, for me it’s peace of mind. If I overspend in one category, I know I still have money in other categories. Like if I accidentally go $20 over in entertainment, I’m not going to let that cannibalize my grocery budget just because. I know the money is there and I budgeted for it, so I’m not going to throw the rest of my budget out the window just because I blew it on one category.
The opposite is also why I like categories– you can use them like mini accounts and transfer when you blow it in another category. So if you feel like you can handle subtracting $20 from one category in your budget because you blew it in entertainment, you have the freedom to do that while still aiming for an overall sticking to the budget in terms of how much money you spent for that given budgeting period.
After you figure out what you think your categories are and what expenses belong in each category, the budgeting part begins!
Identify how much in your month of tracking you spent in each category and decide what you think is reasonable to try sticking too. If you spent $200 in four weeks on gas, is that a reasonable amount to budget for each month? Was it a month where you had more driving than normal or was it a month where you barely used your car? Analyze each category and decide for you what you think might be do-able.
NOW FOR THE GOALS.
We can’t forget about the goals.
This is important. Remember those goals I was talking about? Well, I need you to look at your total income each month and subtract your total budgeted spending. What’s that number? If it’s negative, you have an issue and need to adjust your budget.
If it’s positive, that leftover money can be used for your goals. Is your goal to put an extra $100 on your loans each month? Use that money for that, and hell, feel free to wrap it into the debt payment that you have budgeted. Make that leftover money work for you in a way that gets you closer to your goal, whatever that goal may be.
When your new budgeting period begins (some people do it monthly– I find it easiest to do it by paycheck which is bi-weekly for me), you start tracking in your spreadsheet or app. The app or spreadsheet should automatically take it out of whatever category you spent once you track it.
And that’s it! You can keep track of this in a notebook, you can keep track of it in an app, or you can use a Google spreadsheet as I do. Link to this below.
Clo Bare’s Free Budgeting Templates
Note on the spreadsheet link– don’t make any changes to the online version please. Instead, go to “File>Make a Copy” which will copy the template to your Google Drive or click “File> Download as” which will download the file to your device.
A Few Notes On How To Create a Budget
There are LOTS of different way to create a budget. You have to find what works best for you. I know tons of people who prefer to use an app, but for the most part, I really enjoy using a spreadsheet.
Also, budgeting takes a lot of tweaks. How I budget now is very different to how I budgeted in September 2018, and that’s a good thing. Your budget SHOULD change because for one you’ll get better at budgeting as you go, and for two, life changes which means expenses change too.
For a video and tutorial on how to update your budget, check out my video below!
How to Create a Budget: Your Turn
Questions? Comments? Rants about how I’m doing it wrong? What are your tips on how to create a budget? Share in the comments below and if I missed anything or left a gaping hole of information or didn’t consider something– let me know!!