Everyone needs to be on a budget! A personal budget may not be the sexiest topic to discuss, but it’s one of those things that needs to be talked about more. In this episode, Joel and I cover our different approaches to budgeting to make sure that we’re on track with our money every month – especially spending, whether on groceries, electronics, etc. You need to have a plan for your money every month, and at its core, that’s all a budget is. We explain exactly why you need to create a budget. And this episode’s beer is Tweak by Avery which you can find and learn all about on Untappd. If you enjoyed this episode, be sure to subscribe in iTunes, Stitcher, or wherever you get your podcasts.
While we talked a lot about what a budget is, why you need one, and how to make one; it can still be a daunting task to create your very first month’s budget, so let’s do a quick recap and how you can make your own right now:
- Write out your total income for this month and put it at the top of the page.
- Take your previous months expenses and build a budget around that for this month. This approach is way more accurate than trying to think of all your different expenses. (I personally include any amount that I’m going to save as well – for example my monthly amount to set aside for retirement, a monthly amount to go towards a savings goal for something like vacation, as well as setting aside money for an annual expense like car insurance.)
- Then subtract your expenses from your income and this should equal zero. You now have a plan for your money, this is your budget!
- Finally, track it throughout the month and stick to it!!! This is the hardest step. And at the end of the month, you can revise your numbers based on more realistic spending and new goals for the new month.
Here’s a blog post that details the some different budgeting methods that might suit you. And, some tips to get you started with ways to stop dipping into your savings account.
There are lots of different tools and budgeting apps out there but we’d recommend checking out Mint, YNAB, or good old-fashioned spreadsheet which is what I use. Don’t worry about not getting it perfect on your first attempt. If you’ve never put together a budget, it might take a few months of trial and error. And if you’re a budget veteran, leave a comment below if there is a different app that you use for your personal budget. We’re always in a constant state of self-experimentation so we’d love to hear what is working for you!
Good discussion. For someone new to budgeting I first suggest that they track their spending – to the penny – for 60 days before they do anything else. This is a good place to start with defining your categories for your budget. It also takes into account what I call “leaky” spending. By tracking every penny you often find you are spending more on things you don’t realize.
Second, I have them think about any expenses that happen less often. For example, I pay my insurance, property insurance, homeowners association dues, and irrigation water on a bi-annual or yearly basis. However, I account for these monthly and “set aside” the money in savings or checking account. That way I’m not “surprised” when those bills come though.
Finally, I estimate my yearly expenses based on that data. This give me a quick understanding of the “gross” categories that my money is being used for.
Once you have that kind of history you can then start to look at places to reduce (or increase) spending.
This kind of exercise can be quite eye opening.
Until next time….
Steven, these are all awesome suggestions- all of which I’ve either done (initially tracking my spending) or currently do (setting aside 1/12 of my annual car insurance bill, etc.)! You and I are cut from the same cloth- and I completely agree that it can be incredibly enlightening. We also want to make sure that budget noobs aren’t overwhelmed though which can oftentimes lead to scrapping the entire budget before it even gets off the ground! For that reason, I think any movement in the right direction is also a big win.
Great blog! I do have one question. What do you suggest for the person who does rideshare for a living when it comes to creating and maintaining a budget. The amount of money I generally make doing this greatly varies do to the nature of the job; so one month I might do really good, other months not so good.
Hey Michael, great question and I can totally relate as I’m in a very similar boat when it comes to variable income. (Currently, I’m about 3k short in our budgeted income for next month!)
What you need is a cushion to help even out the highs and lows when it comes to your income. In our case, we will continue to save and spend just like we would any other month, but since we have that cushion or margin (some refer to it as their emergency fund), we tap into that which serves as backup income. Then on the fatter months, we rebuild that cushion so that it’s there for us again in the leaner months. If you find that you’re not able to build up that cushion, or if you have one and find that you’re consistently using it up- well thats another conversation altogether, one that focuses on ways to decrease spending or ways to increase income.
We touched on this briefly in our convo on the podcast, but I hope you find this helpful!
Thank you for this podcast!! I’ve been so fed up with financial articles consistently stopping with “don’t use credit card and pay off student loans.” I love the take you two have, I love that it’s conversational and not too dense for just an average stay at home mom trying to be smart with money. Thank you for doing this!
I’m commenting because in the Airbnb episode you mentioned this episode may have been too dry. I loved it! I want so much more of your budgeting insights, don’t stop!
Like most people I get paid every 2 weeks. Two months out of the year I get a 3rd check. Should I budget for the two checks I get most months as income or budget for my “monthly” total of my net pay after taxes?
Hey John, that’s a good question! I think for most folks, having consistency is the simplest and easiest way to stay on track with spending- so for that reason I’d recommend your monthly budgeted income to be your annual take home pay divided out by 12 so it’s the same every month, nice and boring!
If you wanted to really challenge yourself, only budget for 2 checks every month, and then take those 2 additional checks for the year and dump those straight into an investment!
First off love the format of the show it is great, for people like me who want to do better with our financial situation. Your easy to listen to and make a lot of sense, plus I love beer as well.
I am curious if you have any good spreadsheet templates for budgeting you would suggest. I know everyone has their own way, but mine seems so basil and is hard to keep up with.