How To Make A Simple Budget (2024)

How To Make A Simple Budget (1)

What is the best way to start creating a budget?

The first thing that anyone who wants to make a budget must do is to compare their income versus their expenses.

The good newsis that it is quite easy to do.

To get started you can download a freebudgeting spreadsheettemplate which will help you calculate how much you spend each month and compare it to your current income.

It’s too bad most of us never learned this in school and had to figure it out on our own – so here is the lesson that we should have learned in 5th grade:

Expenses > Income = Bad

& Expenses < Income = Good

And honestly, as simple as it sounds, that is the key to wealth. Anyone, and I mean anyone, who IS wealthy (I emphasize IS because I am not talking about people who appear to be wealthy, but who are actually in debt up to their eyeballs) spends LESS money than they earn. AKA – their expenses are less than their income.

The great news about this is that anyone can do this – no matter what their income level. If you can do it on a small income, then you can do it on a large income. If you can’t do it on a small income, then you won’t be able to do it on a large one either. Trust me!

If you don’t believe me, just ask all of the lottery winners who went bankrupt within years of winning millions of dollars.

Back to making our budget…

Regardless of how your expenses and income compare right now – get excited, because you can easily change it!! If it is bad, you can make it so much better!! If it is good, you can still make it even better!! I will show you how later, but for now…

How to make a budget!

How To Make A Simple Budget (2)

Did you calculate what your monthly expenses and income were? Were your expenses less than your income? If so, you are a rare breed who is in great shape, so just sit tight for a minute.

For everyone else, whose expenses exceeded your income – you are not alone. You actually have a lot of company. The problem is that it isn’t good company! Most of our debt-ridden society is in the same boat, but you are one of the bold ones who is jumping out of the debt boat!!

So, if your income is $1000 and your expenses are $1200, that means you spend an extra $200 each month that YOU DON’T HAVE!! What your job is now is to find out what you can get rid of or quit buying each month to save that $200. If you have no idea where to start you can check out these money saving tips.

I know, I know – this is the part that hurts. Just like pruning a bush – cutting back hurts, but ultimately you are going to yield so muchMOREfruit because of it!!

The goal here is to get your expenses and income to AT LEAST be equal. Once that is accomplished, we can work on eliminating wasteful spending or cut other costs to bring the expenses below the income.

Now that you have calculated what your monthly income and expenses are, we can start designing our budget. We will first discuss the less effective, but easier method for budgeting…

The world’s easiest budget

There are 2 simple rules to do a simple budget:

  1. You can’t spend more than you earn – carrying a balance on a credit card is not allowed.
  2. Money must go to the budget categories as soon you get paid.

The way it works:

Rather than having 10-20 different budgeting categories of items to be budgeted for you, only focus on the 1-3 most important ones and let the rest of the chips fall where they will.

So, to do this you take your paycheck of say $1000 and right off the top you put the money to your main priorities. For many people this is tithing to their church, retirement savings, college savings for children, etc…

A sample of this would be:

$1000 (paycheck)
”“ $100 (tithe)
”“ $100 (retirement savings)
= $800 (for the rest of the bills and everything else)

It is absolutely critical that the money gets taken out FIRST for these few budgeted items. If not, I can almost guarantee that the full amount will not make it as intended.

I highly recommend making this process automatic by using direct deposit or some other form of automatic withdrawal. There is just something about human nature that has a hard time staying consistent with things like this.

Why do you think the U.S. government takes our taxes directly out of our paycheck, rather than coming to collect the full sum at the end of the year? It is the same principle – use it to your advantage.

Easy budget, but not very efficient

I think this budget is perfect for people who don’t want to budget. It is simple, doesn’t take up much time, and will help you reach some savings goals. That said, it is still inefficient and leaves the door wide open for inefficient and foolish spending.

I think it should be considered the “lazy man’s budget” – and you are not LAZY and you are willing to work to get your finances in order!! I know this because you are still reading. So, since you are NOT lazy and are hungry for more of a challenge, let’s look at how the pros budget.

The money saving budgeting method

Yes, this method takes a little bit more time and energy, but it will also provide you with long-term financial benefits if followed.

To do this, we are just going to expand on the lazy man’s budget mentioned above. Rather than having just 1-3 categories of items budgeted for, we are going to create as many as we need to put a limit on our spending in all areas.

You can use the budget spreadsheet (mentioned at the top of the article) as a guide for tracking your progress. Try to account for every possible expense that you could run into. You will never be able to budget for every possible scenario, but the goal is to minimize surprise expenses. Inevitably, there will still be surprises from time to time – so I suggest creating a category for these surprises (or you can just use your emergency fund).

How to stick with your budget

The almost sure-fire way to make a budget that fails is to NOT budget for any fun stuff. I wrote about how budgeting should be fun and it is a necessary ingredient for success. You need to budget for clothing, entertainment, going out to dinner, or whatever else it is you love to do! The key is to do it in moderation and to set limits and abide by them.

The amazing thing is that by budgeting for fun stuff, it actually liberates you to spend money on these items. When you have money budgeted each month to buy clothes, the money is now sitting there waiting to be used for that assigned purpose. Suddenly you can go clothes shopping without feeling guilty!!

This is how budgeting truly becomes fun. When you have money sitting in the bank waiting to be spent. Or, even better: if you start budgeting for vacation and after a little while you have hundreds of dollars begging to be spent on a vacation!! You go on your trip and come back home and don’t owe any money to a credit card company – now that is how a budget becomes fun and what helps you stick with it!!

I also suggest you check out theenvelope budgeting method, or the method that I usedto budget with ING.

Need more help?

There are many ways to create a budget works. The key is to find a system that works for you and sticking with it. This article has gone over a basic method of budgeting, but if you need a little more hand-holding definitely check out our Real Money Budgeting course.

It is what we use and after trying as many tools as I have I think it is the best budgeting method out there for those who want it to be simple and easy to stick with it.

Homework:

1. Create your budget! Use our Real Money Budgeting course. or download a spreadsheet, or worksheet – just do something!

I would love to hear what budgeting method has worked for you and what hasn’t. Let us know in the comments below…

Related Posts

  • 10 Free Household Budget Spreadsheets

  • How To Set Up A Budget With Inconsistent Income

  • 70+ Budget Categories To Consider for your Budget

  • 7 FREE Printable Budgeting Worksheets

How To Make A Simple Budget (2024)

FAQs

How To Make A Simple Budget? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.

What is the 50 20 30 rule? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.

What is the simplest budgeting method? ›

Basic Budgeting Method #1: The Classic Budget

Listing out your expenses, line by line, is a tried-and-true budgeting strategy. Get started by listing all of your monthly expenses in rows. This includes the needs (your rent or mortgage payments, car payments and insurance, cell phone bill, groceries, etc.)

What is a good basic budget? ›

Try a simple budgeting plan. We recommend the popular 50/30/20 budget to maximize your money. In it, you spend roughly 50% of your after-tax dollars on necessities, including debt minimum payments. No more than 30% goes to wants, and at least 20% goes to savings and additional debt payments beyond minimums.

What are the 5 basics to any budget? ›

What Are the 5 Basic Elements of a Budget?
  • Income. The first place that you should start when thinking about your budget is your income. ...
  • Fixed Expenses. ...
  • Debt. ...
  • Flexible and Unplanned Expenses. ...
  • Savings.

How can I simplify my budget? ›

Here are six ways to simplify your budget to help make it much easier to stick with.
  1. Automate Everything. ...
  2. Combine Budgeted Categories. ...
  3. Simplify Your Definition of Budgeting. ...
  4. Put Saving and Investing on Autopilot. ...
  5. Create a Mindset of “Everything is Spending” ...
  6. Set Aside a Small Amount of Time to Work on Your Budget.

Can you live off $1000 a month after bills? ›

Getting by on $1,000 a month may not be easy, especially when inflation seems to make everything more expensive. But it is possible to live well even on a small amount of money. Surviving on $1,000 a month requires careful budgeting, prioritizing essential expenses, and finding ways to save money.

How to budget $4000 a month? ›

How To Budget Using the 50/30/20 Rule
  1. 50% for mandatory expenses = $2,000 (0.50 X 4,000 = $2,000)
  2. 30% for wants and discretionary spending = $1,200 (0.30 X 4,000 = $1,200)
  3. 20% for savings and debt repayment = $800 (0.20 X 4,000 = $800)
Oct 26, 2023

What is the budget rule of thumb? ›

The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).

What are the three 3 common budgeting mistakes to avoid? ›

8 Common Budgeting Mistakes You Should Avoid
  • Ignoring Debt Management. ...
  • Overlooking Small Expenses. ...
  • Failing to Plan for Emergencies. ...
  • Setting Unrealistic Budget Goals. ...
  • Neglecting to Review and Adjust the Budget. ...
  • Forgetting Seasonal and Irregular Expenses. ...
  • Lack of Prioritisation in Spending.
Apr 29, 2024

What is a good first step when budgeting? ›

1. Assess your financial resources. The first step is to calculate how much money you have coming in each month. This might be investment income, government assistance, student loans, employment income, disability benefits, retirement pensions or money from other sources.

What are 7 steps to a budget made easy? ›

Follow these seven steps to start a personal budget that can help you reach your financial goals:
  1. Calculate your income. ...
  2. Make lists of your expenses. ...
  3. Set realistic goals. ...
  4. Choose a budgeting strategy. ...
  5. Adjust your habits. ...
  6. Automate your savings and bills. ...
  7. Track your progress.

How to budget for dummies? ›

How to budget for beginners
  1. Calculate your total monthly income from all sources. ...
  2. Categorize your monthly expenses. ...
  3. Set budgeting goals. ...
  4. Follow the 50/30/20 budget method. ...
  5. Make changes to your spending habits. ...
  6. Use budgeting tools to track your spending and savings. ...
  7. Review your budget from time to time.
Jun 20, 2023

What is a realistic monthly budget? ›

Setting budget percentages

That rule suggests you should spend 50% of your after-tax pay on needs, 30% on wants, and 20% on savings and paying off debt. While this may work for some, it's often better to start with a more detailed categorizing of expenses to get a better handle on your spending.

What is a normal household budget? ›

Average household earnings in 2022 were $94,003, while average total expenditures for the year were $72,967, according to the Bureau of Labor Statistics' Consumer Expenditure Survey. This included an average of $24,298 on housing, $12,295 on transportation and $9,343 on food.

What are the 7 steps in creating a budget? ›

Follow these seven steps to start a personal budget that can help you reach your financial goals:
  • Calculate your income. ...
  • Make lists of your expenses. ...
  • Set realistic goals. ...
  • Choose a budgeting strategy. ...
  • Adjust your habits. ...
  • Automate your savings and bills. ...
  • Track your progress.
3 days ago

How do you start a budget when you're broke? ›

Here are some tips for building a budget if you don't have one:
  1. Track your income. You should include your salary, any side hustles, and any other sources of income you may have.
  2. Categorize your expenses. ...
  3. Allocate your income. ...
  4. Leave room for flexibility. ...
  5. Track your progress.
Mar 15, 2024

What is the 30 day budget rule? ›

Here's how it works: When you have the urge to make an impulse purchase, wait for 30 days and give yourself time to think about it. While considering the purchase, deposit the money you need for it into a savings account. If you still want to buy that item after the 30-day period is up, go for it.

How to budget $5000 a month? ›

If you bring home $5,000 after-tax each month, according to the rule you'd split your income as follows:
  1. $2,500: 50% of your income, is allocated towards necessities — rent, utilities and groceries.
  2. $1,500: 30% of your income, is allocated towards things you want, whether it's the latest iPhone or a fresh outfit.

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