I think one of the biggest problems with budgeting is that people make it too complicated.
They download complicated spreadsheets, create dozens of spending categories and try to account for every dollar they might spend. Before long, budgeting starts to feel like another job.
So they give up.
I believe a budget should be simple.
A budget isn’t meant to punish you. It’s simply a plan for your money. And if you’re creating your first budget, you don’t need to make it complicated.
Start With What You Bring Home
The first thing you need to know is how much money you actually have coming in each month.
Don’t start with your salary before taxes. Look at the amount that actually reaches your bank account.
That’s the money you have to work with. Write that number down.
Next, Write Down Your Bills
Now list the bills you know you have to pay every month.
- Mortgage or rent
- Car payment
- Insurance
- Electricity
- Water
- Phone
- Internet
- Credit cards
- Other loan payments
Don’t worry about making a fancy spreadsheet. A piece of paper works just fine. The important thing is knowing what you owe.
Add Your Normal Everyday Expenses
This is where I think people sometimes underestimate how much they’re actually spending.
You still have to buy groceries. You need gas in the car. You may buy lunch while you’re working, pick up household supplies or have prescriptions to fill.
These are real expenses, and they belong in your budget.
Look at what you’ve actually been spending instead of choosing a number that sounds good.
If your family normally spends $700 a month on groceries, putting $400 in your budget isn’t going to magically make the grocery bill $400.
Start with reality. Then you can look for places to save.
And Yes, Leave Room for Fun
I think this is important.
Your budget should have some room for you to enjoy your life.
Maybe you like going out to dinner. Maybe you enjoy getting your nails done, buying something for your home or having coffee with a friend.
Put some fun money in the budget.
If you create a budget that says you can never spend money on anything you enjoy, how long do you think you’re going to follow it? Probably not very long.
The goal isn’t to make yourself miserable. The goal is to know what you can afford to spend.
There’s a big difference between spending $50 because you’ve planned for it and spending $50 and wondering later how you’re going to pay the electric bill.
Now Look at What’s Left
Once you’ve written down your income, bills, groceries, everyday expenses and some money for fun, subtract everything from the amount you bring home.
What do you have left?
If there’s money left over, great. That’s where you can start building savings, paying extra toward debt or working toward another financial goal.
If there’s nothing left—or you’re spending more than you bring home—don’t beat yourself up. Now you know. And knowing gives you the opportunity to change something.
Look through your expenses and ask yourself a simple question: Where can I make a small change?
You don’t have to completely change your life overnight. Maybe you can save $25 this week. Maybe you can eat at home one extra night. Maybe there’s a subscription you’re paying for that you don’t use anymore.
Small changes count.
What Could a Simple Budget Look Like?
Let’s say you bring home $4,000 a month after taxes.
Your budget might look something like this:
Monthly take-home pay: $4,000
- Mortgage or rent: $1,200
- Utilities: $300
- Car payment: $400
- Insurance: $250
- Phone and internet: $150
- Groceries: $600
- Gas: $250
- Credit card/debt payments: $250
- Household and personal expenses: $150
- Fun money: $150
- Savings: $200
- Other/miscellaneous: $100
Total: $4,000
That’s it. It doesn’t need to have 30 categories.
And your numbers won’t look exactly like these. Your housing may be higher. Your car may be paid off. You may spend more on groceries or less on gas.
The point isn’t to copy someone else’s budget.
The point is to create a budget that reflects your real life.
And notice something else in this example: we included $150 for fun.
You don’t have to feel guilty every time you spend money on something you enjoy. If you’ve planned for it and can afford it, it’s part of your budget.
Your Budget Doesn’t Have to Be Perfect
Your first budget probably won’t be perfect. That’s okay.
Life changes. Grocery prices change. Electric bills change. Unexpected expenses happen.
A budget isn’t something you create once and never touch again. It’s something you adjust as life happens.
Keep it simple. Make it realistic. Give yourself a little room to enjoy life.
Most importantly, don’t give up because you didn’t follow your budget perfectly.
The purpose of a budget isn’t perfection.
It’s knowing where your money is going and deciding where you want it to go.
That’s a pretty good place to start.
Real Life, Real Money 