7 Steps to a Budget That Works for You!

When I first began focusing on my finances to become fiscally responsible, budgeting was something that I just did not get. Yeah, I tracked where my money went, but I wasn’t telling it where to go. It just would go to my bills, and then my food, and my car, and next thing I would know, I’d have two days till payday and I was stressed out about making it till then! But once I decided I didn’t want to live like that any longer, I broke down how to budget in the best way that fit my life with 7 steps. With this monthly budget system, I’ve been pretty successful at paying down debt, with one month paying off over $4,000! It’s working for me and the best part – I’m not losing out on tons of things that I want!

1. Calculate my income after taxes.

First, I have to know how much money I’m going to get. Typically, I look at how much I’ve made over the past few months and take the least amount. Always take the lower, so if you have extra cash, it can be more that goes to savings, or debt, or spending money for that month!

2. Calculate how much I should be spending on various categories based on recommended percentages.

If you’re looking for recommended percentages to budget by, there is tons of graphics on Pinterest! I’ve found tons that I’ve pinned to my Financial Stability board. I started with the following breakdown:

• Housing: 25% (mortgage/rent, home insurance
• Transportation: 15% (this is car payments, gas, car insurance)
• Groceries & Dining: 12%
• Utilities: 10%
• Savings: 9%
• Clothing: 7%
• Medical: 7%
• Entertainment: 5%
• Holidays & Gifts: 5%
• Debt: 5%

Calculate the amounts that you have within each categories. For example, let’s say you make $8,000 per month, your amounts in each category would be:

• Housing: $2,000
• Transportation: $1,200
• Groceries & Dining: $960
• Utilities: $800
• Savings: $720
• Clothing: $560
• Medical: $560
• Entertainment: $400
• Holidays and Gifts: $400
• Debt: $400

3. Match my expenses to the above categories.

After figuring out how much I can spend within each category, I match what I’m spending into each! That way, I know how much of each category I am truly spending before moving onto the next step!

4. Shift funds – if possible.

This is the part where you make your budget work for you! Spending more money than recommended is okay, as long as you budget for it!

After matching what I spend every month into the above categories, I can find where I am not meeting the max and shift my money around. For example, I can spend $2,000 for my rent/mortgage. But let’s say I only spend $1,600 in reality. That’s $400 I can shift into food – cause I like to eat – or put towards my debt payments – because I have a lot of it!

5. Add some wiggle room!

When adding up all the expenses, I always make sure to add $200 of wiggle room. That’s typically what a rainy day savings fund is for, but I like to include the extra amount just in case there’s something unexpected that happens. Sometimes you really need a new pair of pants or you have a family dinner to go out to. Life happens and sometimes, it just doesn’t quite fit into a zero-based budget. That’s okay though!

6. Determine extra amount of money, or find ways to cut back.

Going off of the above step, if I don’t use that money, then the extra either goes to paying down debt or goes to savings at the end of the month. Any other extra funds I have, I do the same thing – debt or savings. You can split them between both, dedicate to one, or alternate where you send the money. Personally, my husband and I are focused on paying down our debt, so I throw every extra cent at it!

If you don’t have extra money at the end of the month and you’re negative, look at your expenses. Is there something you can cut? If so, do it! How can you make extra cash? Even if it’s just a little bit, it will help out so much over time! Debbie from Basic Home DIY has a great post about ways to cut expenses in your home budget!

Another option to make up the negative is to find ways to make money. My friend at Life After 50 has a great article about passive income – which is always nice to start – and how to get started!

7. Stick to it!

I think this step is the hardest when it comes to making a budget. It’s easy to say “I’m only going to spend $800 on food this month,” but actually following that is the tough part! If you’re finding that it’s not working after a couple months, go back and revise. There’s nothing wrong with doing that. I’ve revised my own budget countless times until I finally found this strategy and the right amounts for me to spend on things.

My husband and I use an app called Honeydue, which allows both of us to be on the same account and see how much we’ve spent in each category. It also shows all our bills and we can mark when they’ve been paid!

Other Strategies on How to Budget:

My method may not be the one that works for you and that’s okay! Below are a couple of other methods that are fairly popular:

• Cash Envelope System – this system helps you stick to your budget so much better. I personally never used it, as I usually just tell myself no but that’s not always doable!
• Half Payment Budget – this system is great if you get paid bi-weekly! Both B and I get paid monthly, so we always just pay everything when it’s due, but this concept helps tackle your monthly payments if they’re over one paycheck!
• Zero-Based Budget – with this system, you make sure you know where every cent goes to within your budget. I personally don’t use this one and haven’t liked it because it really stresses me out.

Do you budget on a regular basis? How is it going for you?