How To Make a Budget (That You’ll Actually Use)

“If You’re Reading This, I’m Already Proud of You.”
 – Your Future Self

OK, great. You made it here—to this post! You must be feeling fairly motivated to try out this budgeting thing.

You also might be a little, or a lot, overwhelmed and anxious (common side effects of not having a budget). Don’t worry. You’ll feel better after you take a little thing that we refer to as action.

Really and truly, once you start doing The Budgeting Things—determining your income and expenses, building the framework for your budget, and establishing financial goals—it all turns into a game. And you get to play it every time money moves in or out of your life.

Probably the coolest part of budgeting for me (and we hear this all the time from YNABers) is that your perspective totally shifts: a budget doesn’t rule your life—it’s actually the opposite: a budget is the perfect tool for setting yourself free.

And who doesn’t want to feel free? And in control.

A Quick Pep Talk…

No matter how bad you think you are with money, or how much your inner child is screaming “Nooo!”, just imagine how it will feel to break the paycheck to paycheck cycle—to have money in the bank to pay for everything you need, with some left over.

Budgeting means that, soon enough, you’ll have money sitting around (just in case your car needs a repair, or whatever). The point is, you’ll be in control. And this isn’t just about “adulting” … it’s about choices. Finally do the things you’ve been dreaming about—like a Hawaiian vacation with your honey—knowing that the rest of your life is covered.

When you’re living your dream?
That’s when you’ll be so-so glad that you decided to try budgeting.

So, let’s get to it. Don’t overthink this. Just do your best and finish every step. You can always go back and fine-tune things later.

A Few Words On Guessing: Just Stop It.

A lot of people get stuck, right off the bat, trying to figure out what they probably-maybe-might spend in a “normal month”. That, friend, is like hunting unicorns. And it’s understandable. A lot of “budgeting” advice is related to forecasting—or predicting what’s to come. We do things a little differently at YNAB …

We look at actuals. How much money do you have right now? What do you need to buy before you get paid again? Simple questions that have, maybe not-so-simple, answers.

(Pst. The answers get very, very simple once you’ve got a budget. Yes they do, and it’s wonderful.)

As you build your budget, acknowledge your feelings of overwhelm and then promptly ignore them. Remember, this is not about perfection. It’s just a start—a very good start that will do miraculous things to your finances, but a start nonetheless. Cool?

Fire Up Your Pen and Paper!

You are on the precipice of budgeting greatness. Do you feel mighty? Inhale. Exhale. Here we go.

Let’s start with some simple lists. Everyone’s life is different, which means your lists won’t look exactly like mine. That’s the beauty of this process—when you’re done, you’ll have exactly what you need to build a budget that’s tailored to support you, in all the ways you want and need to be supported.

Think about where you spend money. For example:

  • Fixed monthly bills – Stuff like rent, phone bill, internet bill or membership fees.
  • Variable monthly bills – Things that fluctuate a bit more, like eating out, new clothing, babysitting expenses or fuel.
  • Annual expenses – Like car insurance, holiday gifts or renewing your web hosting service.
  • Debt – Credit cards, student loans or a car loan. How much do you owe for each, and what are your minimum monthly payments?

You probably won’t remember every single thing (and you definitely can’t predict the future and expenditures to come!). That’s OK. You can, and will, edit your list.

If this exercise is just way too hard, here’s the easy way out: take a month to simply write down everything you spend. You’ll have a decent idea of your monthly obligations, and it’ll ease you into the process.

Oh, and no big deal, but these “lists” we just made? They’re actually categories … of your NEW BUDGET. Sneaky, huh?

What’s Actually In Your Wallet?

This one’s easy. What’s your bank balance right now? If you have more than one checking account, or a mattress stuffed full of cash (lucky you!), add those in, too. Cool? Onward …

Your Budget Is Born! Nearly.

Congratulations, friend! Now you’ve got everything you need to start budgeting.

And, it just so happens, we’ve got a four-step method that has proven to be kind of extremely helpful for smashing debt and feeling good great about your money. It looks like this:

Rule One: Give Every Dollar a Job

This is just like it sounds, and it’s extremely simple. Whether you have $1,000 in your checking account, or $100, simply decide what each of those dollars needs to do before you get paid again.

For example, let’s say you have $500 in your account, and you know that you have a few bills due this week (plus you’re out of groceries). After giving some of your dollars the job to pay those bills, you can see that you’ve got $150 left for groceries.

Maybe you only need $75 for groceries in a week, so you’ve still got $75 left (this means you’re not done). Give those remaining dollars a job of paying rent next week (or whatever your next bill is). Then, when you get your next paycheck, you’ll put more dollars into your rent category to help them out.

Now everything is set. Knowing ahead of time how you’ll spend your money means that you won’t need to worry about having enough. Giving you dollars a job, up-front prevents those “Oh, I just spent a wad of cash on this killer new speaker system and now I can’t pay my light bill.” moments.

Rule Two: Embrace Your True Expenses

Remember your list of annual, bigger (and possibly fluctuating) expenses? They can feel like absolute budget-wreckers.

How many times have you felt like everything was going good but—out of the blue—you had to pay for something big that you hadn’t planned on? Like an amazing costume for a friend’s party or, like, a new head gasket for your Jeep. (Serious bummer.)

The thing is, these don’t have to be serious bummers. In fact, they aren’t—that costume was on point. What I’m getting at is, your budget helps you see them ahead of time, so they don’t become emergencies.

With this rule, you take the full cost of those bigger, less frequent, expenses and divide it into smaller, more manageable bites. Twelve bites. OK, “monthly installments”. 

This way, instead of panicking when you inevitably need a seriously-awesome costume for your friend’s annual-yes-we-do-it-every-year party (or a car repair), you just pay it. It’s not a big deal, because you planned for it.

Rule Three: Roll with the Punches

Life happens. You will overspend. Your kid might need extra art supplies for the school talent contest and the cost of glitter has gone up. Maybe you blow through your grocery budget faster than you thought you would. That’s what this rule is for!

If you overspend, just assess your budget and move around your money. Pull the dollars you need from a different category, cover the overspending, and call it a day. Remember, you’re the boss!

Rule Four: Age Your Money

Rule Four is about breaking the paycheck to paycheck cycle by consistently spending less than you earn—the reason being, you want to build a buffer. A buffer’s job is to create a lag between when you get paid and when you spend that pay.

With the help of the other three rules, you’ll naturally prioritize and gain control of your money. This rule helps you get ahead in a way that truly impacts your life—in the most anxiety-reducing, blissful way possible …

Imagine that it’s the first of the month and all of your bills and expenses are paid. If you didn’t earn a single dollar this month, you could still live—and pay—for your life as usual. (We hope that you earn many dollars this month. The point is, if you have a buffer, you won’t need them in the next thirty days.) You’re set right now.

And guess what you do with the dollars from this month? Budget them for next month’s expenses!

With a buffer, you’ve always got plenty of money just chilling in your bank account, waiting to do its job. When bills are due, you pay them. If the unexpected happens, it’s not a financial emergency. You’re free from worry (and it feels amazing!).

This All Sounds Great, In Theory

So how do you keep track of your categories (and all those jobs you’ve given your dollars)? You could build yourself a spreadsheet. Some people go for old-fashioned envelopes and cash. Maybe you’ve got a special bond with your trusty pen and notebook.

…or you could try out YNAB, free, for 34 days. Between the desktop and mobile versions, you can pretty much budget anywhere. See if YNAB’s as much of a game-changer for you as it has been for me.

More questions? Join one of YNAB’s free workshops. Our teachers would be happy to answer your budgeting questions.

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How To Make a Budget (That You’ll Actually Use)