How To Budget & Stick To It

I know that so many people hear the word “budget” and begin to panic. “How do I even do that?” If you don’t budget, I guarantee that you will spend more money than you should every month.

When I got my first full time job, I spent a lot of time creating the perfect budget- 4 years later I am still using this same system, and it works great!

I created a spreadsheet titled “Monthly Funds” and allocated my paycheck into these virtual “funds” to make sure I don’t overspend and always have a safety net.

High level, what I do each month is:

  • Allocate each paycheck Into these monthly funds- some of the funds are fixed expenses, and some are accruals that I am building up balances for
  • Every week, I adjust the numbers and see where I am at and to make sure I don’t go over my balances and adjust my spending for the rest of the month, as needed

In this example, I am using $3,000 as the monthly income. I created the detail above based on common categories/spending. Adjust these lines to your personal income and expense amounts/categories, making sure to not go over your monthly income amount.

Each time your paycheck comes in, add the amounts in the “Amount in Each Month” column to the “Current Balance” column. The first time you do the allocation from your paycheck, the “Current Balances” column should all be 0. The “Current Balance” column is what will be used to keep track of your spending. The “Amount in Each Month” column is a cheat sheet to remember how your paycheck is allocated. If you are paid twice a month, you can divide the “amount in each month” numbers in half, and rename “Amount in Each Paycheck”.

The items in the “funds” I like to think of as two separate categories- expenses and accruals.

The expenses are fixed amounts that you will pay every month, such as:

  • Medical Insurance
  • Savings (not truly an “expense” but I make sure to put the same amount in every month)
  • Car Insurance
  • Car payment
  • Cell Phone
  • Spotify Premium (and other subscriptions)
  • Rent
  • Renter’s Insurance
  • Wifi
  • Loans

The accruals are funds that you will build up. These amounts should never get to 0 to make sure you have a solid build-up when you need to pull from these:

  • Groceries*
  • Utilities*
  • Toiletries
  • Hair Cut
  • Dry Cleaning
  • Medical Fund (to pay for medical bills, separate from insurance)
  • Entertainment*
  • Vacation

*These are expenses you will have every month, but will vary, so you should have a build up over time

At the end of each week, I look at my expenses (through my debit cards, credit cards, etc.) and subtract my spending from the category it belongs in (“Current Balance” column above).

For example, if the my entertainment balance was at $200 at the beginning of the month and the first week I spend $20 going to the movies, I will subtract that from the $200 and will have $180 left to spend for the month. This is an easy way to see what you can, and can’t, afford to do for the rest of the month.

In the beginning, it will take a while to get used to this method and to create a solid build up in these areas. You can adjust the amounts and different funds over time to fit your needs. If you are finding you are accruing for too much in certain areas, I like to add this extra money to my savings over time (this is up to personal discretion).

The biggest thing to remember is to never let the accrual amounts get to 0. For example, you probably won’t need to use your medical fund every month, but if you build up to an amount, let’s say $100, when you unexpectedly have to go to the doctor, you know that you have the money aside for it and won’t have to sacrifice something else for this.

It is also important to reconcile your expenses each week to ensure that you never go negative in any of the balances above. If you do happen to go negative, make sure you you build back up before this balance becomes an issue.

I know this method may not be for everybody, but it has really helped me to better understand my finances over the past few years, and I have not incurred any credit card debt due to watching everything I spend and not going over my limits.

Let me know what you think or have any questions, and if you have your own suggestions on budgeting!

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