If you’ve been in the CGS community for a while, then you know I preach this fact: a budget is the number one tool for financial success. I’ll never stop advocating for budgeting because it’s what turned my life around over a decade ago and led me to where I am right now – writing this article in the City Girl Savings office space as a full-time finance coach. That’s right. Budgeting made all those things possible for me. Now, I’m sharing the love.
As you may know, I went to school for finance. I got my Bachelor of Science degree in Finance from Cal State Northridge. However, while going to school for finance, I was making all the wrong financial moves in my personal life.
That’s because there’s SO much more to budgeting and money management than “knowing what to do”. I mean, come on…we all know what to do. Save. Avoid overspending. Skip the debt. However, implementing those things is where it gets hard.
I truly believe there is a little bit of an art and science to budgeting. You can’t just list out your bills and call it a day! You have to incorporate a few things to set yourself up for consistency. I’m walking you through a checklist for creating your realistic budget plan, so you can have a day-to-day roadmap for your money. Remember, I create budget plans for clients – if you need one, get started with the Budget Form!
A Checklist for Creating Your Realistic Budget
#1 Start with your consistent income
Emphasis on consistent! For your budget to be realistic, we should only leverage money we know for sure is coming in. When creating your budget, start by listing your guaranteed income for the month. This is your starting point and it’s a number that you will refer to once all of your bills and spending are listed.
Now, just because you’re only leveraging consistent income in your realistic budget doesn’t mean you shouldn’t have a plan in case extra money comes in. If you do make extra money within the month, know what you’re going to do with it before you get it. This will help make sure you don’t spend it all!
#2 List out your monthly bills
Next step in creating your budget is listing out your monthly bills. These are the things you know come due every month. Things like rent, utility bills, minimum debt payments, etc. Take the time to list out each bill, the bill amount and the due date.
Once you have all of your monthly bills listed, add the bill amounts up to get a monthly total. This is another figure that we will come back to.
#3 Include monthly amounts for quarterly, semi-annual or annual expenses
When creating our budget, we can’t forget about the non-monthly expenses! Otherwise, the bill will pop up unexpectedly and throw your budget for a loop! On a separate sheet or in an additional tab on your spreadsheet, make a list of all your quarterly, semi-annual and annual expenses. Include the amount of the expense and the due date.
Once you have the list, take each item, and get a monthly number for it. For example, if you spend $120 per year on Amazon prime, the monthly amount would be $10 ($10 x 12 months = $120). Then get a total for all the monthly amounts. We want to add this number to your budget to save for these non-monthly expenses. That way, when the bill rolls around, you already have the amount you need. No harm done to your budget!
#4 Allocate income to your variable categories
Next step in creating your realistic budget is to allocate amounts to your variable spending categories. These are things like gas, dining out, groceries, toiletries – things that we spend money on every month, but they don’t have a set amount or due date.
Not sure how much to allocate? You have two options. You can take a look at your past spending in these categories and use that to help you determine an amount. You can also subtract your total expenses (including the monthly amount for non-monthly expenses) from your income. What do you have left? That left over amount should be used to allocate income to these categories.
#5 Allocate income to the things you love
Moving right along – we want to make sure your budget includes the things you love. This helps make your budget realistic and easier to stick to over the long haul. Just like you allocated income to variable spending categories, you’ll want to allocate income to the things you love.
Don’t be disappointed if you can’t spend as much as you’d want to on these things. There will come a time where you can. For now, we need to make sure you can enjoy yourself on a budget, but in moderation as you work towards other goals.
#6 Everything else goes to your goal (or goals)
If, after steps 2-5 are completed, you have any income left over, you’ll want to allocate it to your most pressing goals. This could include saving for emergencies, paying off debt, saving for a specific purchase, investing, or any other goal. Again, you may not be able to contribute much to your goal, but anything is better than nothing!
Tada! You now have a realistic budget that includes everything it needs to!
If you can follow the six steps listed above when creating your budget, you’ll have a realistic plan you can follow. You may not like or appreciate all the numbers, but once you get into a rhythm with budgeting, you’re free to tweak and change to your liking. The most important thing to remember is that you must earn more than you spend. If your spending exceeds your income, that’s a problem. When it comes to creating your budget, where do you struggle? Have you left out any of the steps above? Drop a comment below to share!
The CGS Team