be more attractive: How to Prepare a Budget

Even if you're counting your dollars like it's your favorite hobby, sometimes it still seems like a budget is just a lot of work. The first step is the hardest, where you have to figure out your expenses and calculate all those numbers together. But once you get a grip on what you have to do, it can be a challenge you look forward to completing. And the reward? Money in your pocket.

Steps

Determining Your Budget

Figure out how much money you actually make each month. If you’re on salary, this is going to be pretty easy. You take a look at a paycheck or two and you’re done. But if you get paid hourly or your situation is more on the freelance-side, this is going to be a bit more of a challenge. Gather all your paychecks from the past 6 months or so and figure out your average income – that’s the first number you should be working with.
- If you’re being extra diligent, take the lowest number of the past six months. This will allow you even extra padding in your budget and you’ll see grander results.

Figure out your recurring monthly expenses. What comes out of your pocket every month? Rent, insurance (car, health, etc.), student loans, credit card bills, what else? These are your recurring monthly expenses. They happen without fail. Write them all down and total them up.
- Take a moment to make sure you’ve covered your bases. What about cable bills, utilities, and whatever else you get direct deposited that you don’t even think about? Do you make monthly donations? Have a monthly bus pass? These things, no matter how small, count, too.
- Be sure to include money you have in stocks, Roth IRAs, and other financial plans you have going on. If they’re positive, add them to your monthly income.

Take into account daily expenses, like food and entertainment. Apart from things that recur on a monthly basis, think about your random, daily expenses, too. Try your best to figure out how much you spend on gas, food, movies, shopping, and other, more frivolous expenditures. And if you’re not sure, be sure to overestimate instead of underestimate.
- You can categorize this however you like – either as one lump sum or into smaller categories, like “transportation, “food,” “clothes,” and “entertainment.” However, the upside to more categories is that it’s easier to keep track of and you have money designated to that expense, making you feel like it’s okay to spend it later.

Add in some wiggle room for emergencies. Every month, things happen that we don’t plan for financially. A birthday party calls for buying a nice gift, the car needs repaired, whatever. However much you think is appropriate, tack on some padding for an “emergency fund.” If emergencies don’t happen, you’ll just have that much more money at the end of the month.
- If you absolutely cannot afford an emergency fund, reconsider. Where can you lop off $5 here or $10 there? See if you can come up with $25 somewhere to put into this category. Budgeting isn’t pretty, but it gets the job done.

Make a spreadsheet or write it all out. You can use Excel, download a budgeting program, or just use a pen and paper. Whichever way you choose, get it all out in front of you. Crunch all the numbers together, taking what you make and subtracting all your expenses. It should look something like this:
- Monthly income: $2,000
  
  Set expenses (rent, etc.): $800
  
  Food: $200
  
  Transportation: $75
  
  Entertainment: $100
  
  Emergency: $100
  
  Total: $2000 - $800 - $200 - $100 - $100 -$75 = $725

Decide how much you want to save. Now that you know how much money you have to spend every month (in this case, $725), determine how much you want to put away into your savings. A good number is about 10% of your income, but if you can’t do that, do whatever you can.
- So for our example, you’d take 10% of $2000. That’s $200, bringing our final number to $525 a month. What do you do with this money? Whatever you need to (though saving would be great) – it could also be re-categorized if need be.

Making Your Budget Work

Adjust accordingly. Now that you know, for example, you have $200 to spend for the month on food to make your goals, adjust your lifestyle to fit that constraint. That’s a trip to the grocery store every week spending $50. When you go to the grocery store, you now have a set limit. Have this mindset for all your spending, keeping to your new budgeted lifestyle.
- You’ll have to decide whether “food” fits into the entertainment category or not. If your $200 includes money for eating out, keep in mind that that means about $6 a day.
- This applies to everything – not just food. Do you have $100 set aside for entertainment? A $12 movie brings that to $88. That drink at the bar puts it at $82. Every time you spend money it should be plugged in somewhere and within the confines of your budget. Write it down immediately to keep track.

Do a reality check. It’s far too easy to not realize how much we’re actually spending to get by. It may turn out that you spend $200 a month on entertainment and you didn’t even realize it. It’s important to know where you can cut corners and where you need to readjust. Maybe $100 a month is unrealistic, but you could do fine on $150.
- As long as you meet your goals, you can adjust your budget. Put in the effort to eat at home, not go out as much, and live as frugally as possible. If you need to re-allot some money to a new category, that’s fine. Is there any other area you could make smaller to make up for it?

Track your spending and how it aligns with your budget. As the month progresses, track every penny as much as possible; it’s the only way to A) make your budget work and B) see if your budget is suitable for you. Are you actually spending $200 a month on food? Maybe you need even less!
- It’s going to get monotonous, but it’s worth it. If you don’t do it, you’re not really budgeting. Start with your number at the beginning of the month and write expenses as they come up. At the end of the month, you could have extra money to go out and splurge on.

Set short-term goals. In order to make your budget an efficient, doable budget, there’s got to be a point behind it. Set yourself a goal so you have something to work toward, otherwise you’ll just slowly stop keeping track.
- Here’s an idea: aim to be under in every single category of your budget. It could be by $1 or it could be by $100. If you meet your goal, you can spend that allotted money however you see fit.

Change your budget as your life changes. The fact of the matter is that gas prices go up, you may get a raise or get fired, rent goes up, etc. As things happen and your situation changes, change your budget to match it. Did the rent go up $100? It stinks, but you may have to tack off $25 here and there from other categories to save the same amount. It stinks, yes, but it’s the only way to do it.
- Once you’re a budgeting pro, this will be a piece of cake. It may sound harsh when you’ve never done it before, but a few months in, readjusting will just be a new challenge. You’ll come up with new ways to live by your new budget, and it could even work better.

Sticking to Your Budget

Make it fun by spending what you’ve allotted. Here’s the beauty of it: if you allot $50 for clothes shopping and you haven’t spent it at the end of the month, you have $50 just waiting there for you to go out and have a good time. Without the budget, you might think to yourself, “Nah, I really shouldn’t,” and now you can think, “Woohoo! About time.”
- This is why having more categories is best. It keeps your morale up and the money spread. Everyone needs a perk, regardless of how small their budget is.
- Even if you’re in a place where you feel like you can’t allot money for frivolous things, make it a point to have even just $5 set aside for your favorite triple espresso extra whip double caramel coffee drink once in a while. It’s the little things that help keep your head above water.

Set a long term goal. It may be a wise idea to determine your overall net worth. This means taking the money you have and subtracting the money you owe. If this is a negative number (with loans, a lot of people have negative numbers), this could be a long-term goal to work off. Every month the amount you owe will get a little smaller until all of a sudden you’re in the black – and that is reason to celebrate.
- The beauty of this is that every month should get easier and easier. As you get used to your budget, you’ll be able to live on less and less, setting aside more and more money. You’ll see that number decrease in bigger and bigger increments as you go along. Eventually you may find yourself thinking, “I can’t wait to see how much I can put away this month.”

Turn it into a contest with yourself. You have your numbers from March – now the challenge is: How much better can you do in April? Try and push yourself to the limit and see what you’re capable of. Make it a competition with past you. You never know what you’re capable of until you really try.
- Remember that you still need to eat and to have fun. It’s the difference between ordering a triple espresso extra whip double caramel coffee drink and just ordering it black with a little milk and sugar – it’s not about cutting out everything. It’s about finding places where you can revamp.

Get a budgeting buddy. If all your friends are out practically bathing in moola, it’s gonna be a little hard to stay on budget. To help yourself stick it out, find a friend who can do it with you. Have “Frugal Fridays” together where you both Redbox a movie and eat a cheap dinner together (spaghetti, anyone?). This keeps you from going out and spending more, keeps you sociable and your spirits up, and it makes it seem more doable.
- And the fact of the matter is that budgeting is trendy. DIY projects, $10 meals, and extreme couponing? Yes, please. Entire websites and tv stations are devoted to this; you’re joining a very established bunch. Maybe you can even make budgeting a money-making venture in time.

Reward yourself. After a set amount of time on your budget, be sure to have a reward in place. Have you saved hundreds and hundreds of dollars in the last six months? Go splurge. Take that day off work. Eat that cheesecake by yourself. Get that massage. You’ve spent 180 days waiting for this moment.
- Keep in mind that you don’t want it to be self-defeating, either. If you’re working to save up for a trip and you take that trip, that’s one thing. But if you’re working to pay off that credit card debt and ‘’then’’ you go take a trip, that’s another. Instead of rewarding yourself with something that costs money, do something that you’ve wanted to do that’s free. A day long nap? Spending a day at the beach? There are things you can do that won’t break the bank.