Did you know that one Editor’s Choice survey found that only 32% of American households maintain a budget? Even more frightening, fully 50% of Americans are living paycheck to paycheck! I have no doubt that the lack of budgeting in our country contributes to the paycheck to paycheck lifestyle.
Here’s the thing: a budget is your number one tool for financial success. The reason for that is that a budget tells you what should be happening with your money. That’s some powerful information! When you know what should be happening, you can make sure it happens!
When you don’t know what your money should be doing, though, it does whatever it wants. Whether you’ve set up a budget before or not, there are certain rules to follow to make sure you’re set up for success. Keep reading to learn the 4 rules to follow when setting up your budget.
4 Rules to Follow When Setting Up Your Budget
Rule #1: Only budget consistent income, but have a game plan for extra income
When setting up your budget, you’ll want to factor in your consistent income: the money you know for sure will be coming in. If you try to budget using inconsistent income, you may end up feeling defeated if and when things don’t go as planned.
Equally important, however, is having a plan in place for any extra income that does show up throughout the month. This will ensure you’re not carelessly spending that extra money!
Ideally, your consistent income will cover all of your required bills and spending. Any extra money can be saved towards your goals, put towards debt payoff, or allocated for things you enjoy.
Have the plan in place ahead of time so you’re not caught off guard.
Rule #2: Factor in “fun spending,” in moderation
Believe it or not, one of the most important rules of budgeting is including the fun spending! Now, I’m not saying to go wild with unnecessary spending, but you do want to make sure you have something set aside to live life with.
If you want your budget to be sustainable over the long term, you can’t feel deprived month after month. To avoid feeling like you can’t enjoy yourself, factor in a reasonable amount of money for guilt-free fun every month.
This reasonable amount can be used for the things you enjoy most. The key word here is reasonable! The goal is to not feel deprived, but also to make sure your priorities are covered and that you’re making progress towards your goals.
Rule #3: Have a plan for unexpected or one-off expenses
It never fails: something always comes up. They might not happen frequently, but unexpected expenses are inevitable! We all experience them at some point or another—so a good rule to follow is making sure you have a plan for those one-off expenses. As I like to say, plan for the unplanned!
There are two ways to do this. First, you can have a savings account dedicated to emergencies or unexpected expenses. Or, you can include a category in your budget (I like to use “Miscellaneous”) that acts as a catch-all for expenses you didn’t plan on.
You don’t want an unexpected expense to pop up and throw your budget out of whack! So get prepped and ensure you’re ready to handle that expense when it inevitably comes. Read How to Start Saving for Unexpected Expenses for some more insight.
Rule #4: Don’t forget about the variable spending areas
The final rule to follow when setting up your budget is to make sure you’re including variable spending. Variable expenses are things that don’t have a set amount or due date each month, but are still necessary expenses.
Some examples of variable spending include groceries, gas, public transportation, fun spending, and dining out. These expenses vary from month to month, but you can count on having most of them every month.
If you’re not sure how much to allocate to these areas, start by looking at what you normally spend on them—I recommend looking at the last 3 months of expenses to get an average cost. If the number is higher than you’d like, work on bringing it down!
Get comfortable knowing that your budget will ebb and flow over time. What you spend on groceries this month might drastically change next month—and that’s perfectly fine.
If you can follow the 4 rules above when setting up your budget, you’ll be golden! Now, don’t forget: There’s more to budgeting than just creating the budget. Make sure you have a plan in place to stick to the budget—and the best way to do that is by tracking your spending. Do you have any must-haves that you factor in when creating your budget? Drop a comment below to share your tips or questions!