Creating a budget is actually a fairly easy task. It does require some thought and some initial work, but really it’s not that difficult. You simply take your take home pay and divide it into various categories. As an example, let’s say you take home $3,500 per month after taxes. You’ll take that number and work backwards.
- 15% to Savings
- 50% to fixed expenses like mortgage or rent, utilities, cable, insurance, etc.
- 35% to variable expenses like food, shopping, entertainment, etc.
Obviously, this is a very simplified version, but for the sake of this post, I’ll keep it simplified. In a future post, I’ll dive deeper into how we divide up our budget and discuss what categories we use and what fits into each category.
Sticking to Your Budget > Creating Your Budget
For now, let’s assume you’ve got your budget set…sticking to it is the tough part. I learned this lesson early. About a year after I graduated college, I bought my first house and Rachael and I were dating at the time. She helped me create my first budget (thank goodness she helped me at least take this first step). Once the budget was set, I was feeling GREAT. I figured out how much I could save every month and was excited to start putting some in the bank while still having some money to spend on fun activities.
After the first month, Rachael and I added up everything and I was over budget…yuk! What happened?!? I mean…I set the budget…
Then I didn’t stick to it the following month either. What was going on?? And that’s when I realized that creating a budget and actually sticking to your budget are two very different things.
The world is divided into three groups of people: (1) those who don’t have a budget, (2) those who have a budget and don’t stick to it, and (3) those who have a budget AND stick to it. Let’s face it- there aren’t very many people in the last category because it is HARD and takes self-control. In order to be financially fit, it is absolutely necessary to both create and stick to your budget. Let’s tackle the second, and harder, step.
How To Stick To Your Budget and What This Means
Today, this is what the process looks like for Rachael and I. About halfway through the month (or more often if we have the time), we add up all our receipts and check our bank accounts and tally up where we stand. We use this budget tracker to keep a running tally. This gives us a sense of whether we are on track or not. Often, we will have spent 75% of our shopping budget early in the month. This tells us that we can’t keep our current pace and we know the exact dollar amount we have left to spend. That means if we’re out and about and see a nice side table we’ve been looking for, we may not be able to purchase it this month. It will have to wait. Sticking to the budget means sometimes sacrificing a purchase or at least delaying a purchase.
We also will re-tally the budget about a week from the end of the month so that we have a good idea on how we are doing with food which is almost always very close to the budget. We have two line items for Food and Eating Out. Food is groceries and Eating Out is restaurants. Here’s a scenario that happens fairly often:
We’ll be a few days away from the end of the month but we have virtually no Food or Eating Out budget left. The old me would have just proceeded as normal. Buy the food necessary to make it the rest of the 3 days. However, when you make that decision, you are sacrificing something: savings. If you go over budget, that money has to come from somewhere. It’s either coming out of savings or stacking up credit card debt if you don’t have savings.
So, what do we do? We eat scrambled eggs or peanut butter and jelly for a few days or longer if needed. We sacrifice our normal eating style in order to hit our budget. To some of you, this may seem like no big deal. To others, this may seem silly. If you have money in savings, what’s the big deal spending another $20-$30 to make a few more meals for a few more days? The big deal is that this starts to become a habit. And if you’re always spending $20-$30 over budget, you’re not sticking to it. And soon, that number starts to snowball. It gets bigger because you’re not changing your habits. Sticking to a budget requires some effort, but it’s actually a really great feeling to be eating those scrambled eggs and turning down friends to go out because you know you’re going to hit your budget this month.
Sticking to a budget means sacrificing something, but it really isn’t a big sacrifice in the grand scheme of things.
When you set a budget, you’ll almost always spend right up to that number. So, if you don’t make the sacrifice to stay under that number, you will never hit your budget by accident. And if you say “gee, I’m always $30 over on my food budget, maybe I should just increase my food budget because this is what I actually spend.” Then, you increase your food budget number and then you find yourself still over budget. Even if you increase your budget, you’ll spend a little bit more than your budget unless you stick to your budge by making sacrifices. So, try it out for a few months. Make a few sacrifices towards the end of the month. It’s worth the gratified feeling you’ll get, and your future self will appreciate the extra savings to live off in retirement.
What do you think? Do you track your budget throughout the month?