Creating a budget is one of the most important things you can do to live balanced. A budget is a plan to manage your money in order to get the most out of it.
When you create a budget, you’ll have a way to track your spending and make sure that you’re not spending too much on things that aren’t priorities for you. Your budget also gives you a guide for how much money you should be saving each month, which is an essential part of living balanced because it helps ensure that your savings will last.
But, do you cringe when you hear or see the word budget? That word can easily send a negative vibe through your body.
Don’t get me wrong, I totally encourage budgets. I help people create budgets and maintain them!
However, budgets are not meant to be restrictive and they can be adjusted. In fact, Budgets are simply a tool to use throughout your financial journey. Before you create a worthwhile budget, it is important to get to know your spending habits and relationship with money.
WHY?
Because, once you have that a-ha moment and realize why you make the choices you make, you will be ready to create a budget that is custom designed for you. A budget that you will stick with because it does not feel restrictive. You will release the habits that are holding you back and create new habits that propel you forward.
Not sure where to start? Here are a few steps you can follow before creating your budget.
1. List all of your expenses – a must when creating a budget
You can download your activity from your bank account and credit card statements or just write everything down. Whatever method you use, list everything! Try to get three months’ worth.
There are many apps to help with tracking spending. Here is a list I found that covers quite a few money-spending apps. I personally have not tried them, but you may find this helpful.
2. Assign a category
Assign a category to each expense. Don’t make too many categories or it can get messy. Examples are groceries, dining out, clothing, household items, recreation, gas, insurance, you get the idea.
You can visit a previous blog I wrote about categories if you’d like more details.
3. Note YOUR feelings about each category
Now sort your expenses by category. If you are using the pen-and-paper method, you can just list the different categories on a separate sheet. Next to each category, make a note of how spending money in this category makes you feel. Another question you may ask yourself is how did you feel before you made the purchase.
This may seem strange but it is a good exercise to determine what is important to you and what triggers you to spend on what you do.
I suggest taking time with this step and really deep diving into it. Be honest with yourself.
4. Rank your category
Ranking your categories helps narrow down what is important to YOU. You can create your own ranking system. Mine is a number system and looks like this:
1 – non-negotiable expense and the amount is fixed
2 – non-negotiable expense and the amount is variable
3 – I really like or need this but I can adjust the amount or frequency
4 – I like this, but I don’t really need it and can do without
5 – An expense I can do without
Final words on creating a budget that works
It’s easy to see why budgeting is important: tracking your money gives you valuable insights into how you spend. Start by working up a rough budget, then tweak it as needed. It’s about finding what works for you—and sticking with it.
Best of Luck!