I wanted to call this “I’ll show you mine if you show me yours [budget style]” but decided if anyone stumbled across this article after googling that statement they would be sorely disappointed! Instead, lets talk about creating a budget that actually works. I’ll explain the exact steps I follow, and at the end show my real monthly budget!
Jokes aside, I’ll admit this article is a little nerve-wracking to write. I plan on discussing exactly how I budget (and why!), including what I spend each month. Talking about specific amounts of money always feels a little bit awkward, and like it opens you up to judgement. So why am I doing it? Simply put, this is the easiest budget method that I have ever found! I’m hoping that sharing how I manage my money will help others to do the same.
You may disagree with some of the areas or amounts of money I spend.
That’s okay! I would likely disagree with some of your spending as well. It’s called personal finance for a reason. We all get to have different priorities and goals in life. Your budget should be a reflection of your life, not mine!
I’d like to suggest that everyone (regardless of how little or much you earn) should be on a budget. Don’t think of it as the thing restricting you! When designed correctly, budgets can actually dramatically lower stress. I like to consider it a spending plan rather than a budget, because it allows me to know how much money I get to spend each month! As long as I stay within that amount, I’m comfortable and happy. It truly removes so much financial stress, because you know where your boundaries are. Stick within them, and have a blast completely worry-free!
Budgets DO work!
If you are someone who swears they cannot stick to a budget, continue reading and try my method. What do you have to lose? I had massive problems sticking to my budget previously, but something about this new way just clicked with me.
If you want to learn more, check out the book Worry-Free Money by Shannon Lee Simmons. I read it a few months after starting budgeting the way I currently do, and she suggests a very similar approach. I also loved the section of the book where she explains how to decide what spending is most important to you, and how to stop impulsively buying things. It’s a book you will not regret reading!
Creating a budget that actually works:
1) First, you will need to figure out how much money you can afford to use each month
If your spending exceeds your earnings, your budget won’t work. If you have variable income, don’t stress! I work casually, so I am in the same situation. I used my income statement from last year to determine this years budget, and shaved 10% off as a buffer.
Monthly spending money available= (Last years net income x 90%)/ 12 months
Try to save up one months worth of money that you will leave in your chequing account (tips on how to do that here). Not living paycheck to paycheck is one of the greatest things you can do to lower financial stress when you have a variable income! So for example, in May I am spending money that I earned in April. The money is already in my account at the start of the month, so I don’t have to worry about running short (if I stick to my budget). Any excess money I earn each month above my budget I leave in my chequing to smooth out the months I know I will earn less.
If you have a salary position with a stable income you’re lucky! Simply add up your paychecks for the month, and you have your monthly spending maximum.
2) Figure out your fixed monthly costs
If you have not read my other post, I would again like to point out that a fixed cost doesn’t mean set in stone! A fixed cost is simply one that does not change month to month. These typically include things like rent/mortgage, internet, phone, netflix, vehicle payments (read how I paid mine off), insurance, etc. In many cases, you can lower these costs simply by making a call and asking! I have dropped my fixed costs by $110 a month,which has been a massive help.
3) If you have debt, figure out how much money you will commit to paying it off monthly
Some writers will suggest you simply “try to put as much as possible” on debt each month. I personally found that did not work for me, especially with a variable income. I found I drifted between two extremes:
- Getting so obsessive that I felt guilt spending money on ANYTHING and wanting to put every penny on debt (which would then fail when I didn’t earn as much the next month, and had to dip back into my debt to cover basic bills)
- Not having a clear goal of what debt pay off I was aiming for, therefore likely paying down less than I could have with a clear plan.
Instead, I committed to an amount that I wanted to pay down every single month without fail. This allowed me to know the exact date I would be DEBT FREE!!! If you want tips on how to decide on your amount (plus access to a free calculator that I used for determining my debt-free date) read this article.
4) Determine your savings goals
I’d argue that youshould still save money when you have debt. It’s a fantastic habit to build, and also teaches you delayed gratification because you get things when you actually have the money for them.
Savings can mean many things: short-term goal funds, investments for retirement, your emergency fund (I call mine my “Don’t-worry-be-happy account” because it sounds less stressful), etc.
I personally save towards three things:
- Retirement: I barely put anything in this, since my main focus currently is paying off debt. I still wanted to start investing though since starting early can have a dramatic effect.
- “Fun Fund”: ie the money I get to spend on travel or mountain trips. For a little while I cut out all spending on trips to the mountain (check out my personal instagram account @stephanie_alice_adventures for proof of how much I love hiking and climbing), and strongly resented it. Now I force myself to ONLY use this money for trips so that I know I can have the thing in life that makes me the happiest. Isn’t happiness the point to life?
- “Don’t-worry-be-happy account”: Basically a savings account for all the curve balls life throws. This money essentially goes towards vehicle repairs/service, vet costs, and my yearly dietitian fees. My month to month budget couldn’t cover big expenses like these, so I like to tuck a bit away each month so that I can cover whatever comes up.
5) Figure out how much is left!
Everything that is leftover you can spend totally guilt free! This amount will cover all your variable costs: gas, groceries, skincare, pet food, clothes, restaurants, medications, gifts, etc.
I do not divide this amount into categories for each thing. I personally find that it that never works, because each month is so variable for what I’ll need. For example, in a month where I do a large Costco run (Save money on groceries) my grocery spending will be dramatically different than my usual grocery shopping. Read the secret to sticking to your budget for how I manage my variable spending to ensure that I make it to the end of the month before the end of the money.
So, what does MY actual budget look like?
So there you have it, my step by step process for creating a budget that actually works. Read the secret to sticking to your budget to learn how to actually follow your new budget!
I showed you mine, want to show me yours? (in the comments below, of course)
For a list of all posts I’ve written, click here