How to Create a Budget

Pink piggy bank. How to Create a Budget. Photo by Fabian Blank on Unsplash

Since the pandemic began, many people have lost their jobs or had their hours cut. Now more than ever, it’s evident that managing your money well is extremely important. If you’ve never truly sat down and focused on where your money goes, it’s time to learn how to create a budget.

How to create a budget that works: Separate needs from wants

Remember: Needs are things you must have. There are only 3 types of needs: food, water, and shelter. All the rest is extra. So take care of these things first. Ensure there’s enough money in the budget to cover your rent/mortgage, utilities such as water and electricity, and buying food.

After this comes everything else. Make sure you budget for those things, too.

Preparing for budget creation: Write down how much you earn and when you earn it

If you have regularly recurring income, write down when the money comes in and how much you get. If you’re a freelancer like me and your income is irregular, look at your records for the previous year and figure out an average of what you earn each month.


Make your money work for you: how to create a budget, Photo of a stuffed pig by Fabian Blank on Unsplash

How to create a budget: Write down the things you spend money on

Write down all the things you regularly spend money on; don’t leave anything out. These will be your spending categories

Some people recommend not having too many categories in your budget. They say it’s best if you have your fixed expenses listed and put everything else under “spending money.” I disagree with this advice, at least for myself. When I put everything under “spending money,” I forget what I was setting money aside for in the first place, and end up spending that money on something else.

The budget that works for me is having each item that I’m saving up for listed as a separate category. As we get paid, we put money aside under each category. I have a header category for recurring savings. These are things that I only spend money on about once a year, such as Christmas and birthdays. And I have a separate header category for one-time savings. For example, if we need to replace an appliance, it would go in the one time savings, since this only happens once every many, many years.

How to create a budget: Assign Jobs to Dollars

To make your money work for you, you must assign a job to every dollar. In other words, you must make a plan for your spending before you actually spend the money. To do this, look at the amount of money you earn each month and start distributing the funds you earn into each category. The money you place into the categories, when added together, must not exceed the amount you earn monthly. If it does, you have to make one of two changes: lower your expenses, or find a way to earn more money.

Working with your budget: Write down how much and when you spend

This is the harder but absolutely necessary part. You must write down what you spend. There are two types of expenses: fixed and variable. Fixed expenses are those you get a bill for regularly, such as your rent/mortgage, utilities, life insurance, etc. Variable expenses are those that you do not get a bill for regularly but that you spend money on, such as groceries, gifts, spending money, etc.

How to create a budget that doesn’t take up all your time

Budgeting is kind of a drag, and no one wants to spend three hours doing it every day or even every week. That’s why I use software to make my life easier. A long time ago, a friend told Dan and I about  YNAB, short for “You Need a Budget.” It’s a great app that allows you to enter expenses as you go. You spend time setting it up, but once that’s done, you can do budgeting on the fly. Set aside just 20 minutes or so on the day you get paid to distribute funds, and you’re good to go. Then, enter your expenses as they happen by using the app on your phone. If you’d like to give it the app a try, they give you a full month for free to see how you like it. I recommend using the free get started guide they provide to familiarize yourself with the software, and then giving it a shot. It’ll change your life. And no, this is not an affiliate link. I just really, really like this software and wanted to share. YNAB does have an affiliate program, but I have not signed up for it.

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