Have you ever felt the excitement at the end of the month when you are calculating all the numbers you’ve filled in your budget, to finally find out how much you managed to save this month!? Probably not. Not a lot of people find it as exciting as I do, but I can assure you, it is a lot of fun! But maybe you have already tried out budgeting and still find it boring. I get it, everyone has different interests, likes and dislikes, and I hate to break it to you but whether you like it or not you need a budget, just like you need to brush your teeth or do your laundry. Otherwise you will suffer the consequences, some more sever than others.
Why Do I Need a Budget?
There is one big reason to why you need a budget, to control your finances. Money is a big part of your life, you spend a major part of your time at work to get salary just so you can pay your bills, buy food, do your hobbies and to live the life you want to live. Having such a big impact on your life, your finances are not something you want to get out of control. Some people are already aware of that their finances are slightly out of control and actively try to avoid budgeting to also avoid facing the truth. This is not recommended, and in most cases the more you want to avoid budgeting, the more you actually need a budget.
Convinced to try out budgeting? Maybe not. I have not put down a lot of effort to convince you, and I won’t either. Having a budget is a responsibility you need to take for yourself, like I mentioned before, just like brushing your teeth every day. The difference between brushing your teeth and having a budget is that maybe once a year you pay a lot of money to go to the dentist that will evaluate the status of your teeth and tell you to floss more. Imagine if we had a financial dentist, we paid someone to look over our budget once a year, they evaluate the status of our finances and tell us to spend a bit less money on clothes. Luckily we don’t have to pay a financial dentist to tell us how to manage our finances, that would be expensive, but as a consequence most people don’t have a budget and most people do brush their teeth. If you are one of many that have more control over your teeth than your finances, I encourage you to try out budgeting for a year.
Step 1 – Choose Your Budget
Today there are many different was you can do budgeting. I have always liked the traditional paper and pen and I just recently started with budgeting on my computer. To briefly review the different options:
- Pen and Paper – There is a certain charm to this traditional method writing down all the expenses and using a calculator at the end of the month to sum everything up. With no excuses to start budgeting I’m providing free budget printable for the whole year here: Your Budget
- Computer – There are different budgeting spreadsheets you can download on the internet or you can start your own with a simple excel file. Adding formulas to your spreadsheet makes it very comfortable to easily calculate your numbers in an instance.
- Budgeting Apps – There are many different apps out on the market today. Some even connect to your bank account and all you need to do is to specify some costs and income. This brings down the effort to an minimum but can also take out some of the fun of filling in the budget and the constant awareness of how you are doing throughout the month.
Step 2 – Budget Your Monthly Expenses
To budget how much you aim to spend maximum in the different categories is important to have a goal for yourself to strive for. This also enables you to estimate how much money you feel is necessary for the different categories and ensure that you don’t spend more money on something than you feel that it is worth. When you plan your expenses you have two types, fixed and variable.
Fixed expenses: these are the expenses you need to pay every month, for example rent, bus card and phone.
Variable expenses: These expenses you can influence how much you want to spend, for example food and clothes.
When budgeting your expenses you cannot influence your fixed expenses as much, but if you can identify fixed expenses that might not be relevant for you anymore, for example a gym card if you rarely go to the gym. The variable expenses are the fun expenses where you can set goals for yourself and make strategies of how to fulfill them. Remember that your total budgeted expenses should not be more than your expected income. You now have your personal spending goal!
Step 3 – Budget Follow Up
This is all about putting the numbers in your budget and that’s when you get the real information and value from your budget. Every month you need to fill in what your actual income was and what your actual expenses were in each category. You can either do this every day, a few times per week or once a week, it’s all about what works for you. It is however not recommended to do it once per month. If you do it once per month it can be difficult to remember where all the expenses came from, there is always a few expenses with a cryptic message on your bank statement. Either use your bank statement when filling in the budget if you pay mostly with your card, otherwise make sure to save your receipts. It might feel like a hassle to fill in your budget all the time, but trust me, it is not more complicated than brushing your teeth.
As you fill in your budget throughout the month you also get a heads up of how you are doing. If you have spent the whole amount you budgeted for clothes after two weeks you can actively restrain yourself from buying more clothes until the end of the month.
When the month has ended you calculate your result and you are then ready for the next step!
Step 4 – Analyze Your Budget
This is where the fun begins! With all the information you have collected in your budget you can see black on white where your money actually goes. You can start to analyze this information by asking different questions.
- How much did I spend on each category in relation to what I budgeted for the category?
- On which categories did I spend more than budgeted? What is the reason behind that? Was the things I spent money on really necessary? Did I budget a too small amount or do I need to restrict myself more?
- On which categories did I spend less than budgeted? Great job! If you spend less several months you might want to budget less on this category and increase your savings goal, but it is also a very satisfying feeling to over achieve so feel free to keep it like this!
- Am I happy about what I have spent my money on this month?
- What should I do differently next month?
For each month that pass you will start to see more clearly your spending patterns and you can actively take action to change this pattern into the way you want to spend your money and live your life. Your budget will give you control over your finances.
It might take some time to get used to budgeting and it can be a challenge to change your spending habits. But it is all about habits. Throughout life you have created habits of buying things, when you’re hungry you get a sandwich at the coffee shop, you see a nice hand bag and you want to buy it, you have the habit of wanting to buy things for different reasons. In the same way you can create the habit of not spending simply through not buying. As time passes your mind will stop thinking about the want to buy and you will just pass by the shops with little to no desire at all to spend money.
Enough talk about budgeting! Let’s get started with our very own budget right away! Get your own free printable budget here:
-> Your Budget