What is Budgeting, Really?

At its core, a budget is just a plan for how you’re going to spend and save your money. It’s a way to make sure you’re not spending more than you earn, and that you're allocating enough for the things that matter most—whether that’s rent, groceries, saving, or treating yourself once in a while.

A budget helps you:

• Track your income: Know exactly how much money you have coming in each month.

• Track your expenses: Understand where your money goes.

• Set goals: Save for future purchases or pay off debt.

Budgeting gives you clarity and control, so you can make your money work for you, not the other way around.

Why Budgeting Matters

You might be thinking, “But I’m managing just fine without a budget.” Maybe so, but without a budget, it’s easy to overlook important things like:

• Saving for the future: Without a budget, it’s easy to skip saving for emergencies or retirement.

• Debt repayment: A budget helps you prioritize paying off debt so you’re not just making minimum payments.

• Tracking overspending: Budgeting helps you see where you’re wasting money (like on daily coffee runs or forgotten subscriptions) and gives you the power to cut back.

Budgeting isn’t about restricting your spending; it’s about making sure that every dollar you make is being used in a way that aligns with your goals.

How to Create a Simple Budget

Creating a budget doesn’t have to be complicated. Here’s a simple 3-step method that works for most people:

Step 1: Track Your Income

The first step is to know how much money you’re bringing in each month. This includes:

• Salary: Your take-home pay after taxes.

• Side hustle income: Any extra income from freelance work, part-time jobs, or passive income.

• Other sources: Bonuses, gifts, or any other irregular sources of income.

Once you know your total monthly income, you have a starting point to work with.

Step 2: List Your Expenses

Now, let’s break down where your money is going each month. Your expenses will fall into two main categories: fixedand variable.

• Fixed Expenses: These are regular monthly costs that don’t change much, like rent, utilities, car payments, and insurance.

• Variable Expenses: These can fluctuate each month, like groceries, dining out, entertainment, and shopping.

It’s helpful to track these expenses for at least a month to get a clear picture of your spending habits.

Step 3: Set Your Budget Goals

Now that you know your income and expenses, it’s time to set some financial goals for your remaining money. This can include:

• Discretionary spending: Allocate money towards “treat yourself” expenses like entertainment, dining out, travel, and hobbies.

• Emergency savings: Aim for 3–6 months of living expenses in case of unexpected events.

• Debt repayment: Create a plan to tackle credit card debt, loans, or student loans.

• Short-term savings: Save for things like vacations, a new phone, or upcoming big purchases.

• Long-term savings: Start planning for retirement, or save for a home or other long-term goals.

From there, allocate your income across these categories. Make sure you’re setting aside enough to cover your fixed expenses and goals, while leaving room for variable spending.

Tips for Sticking to Your Budget

Creating a budget is one thing, but sticking to it is a whole different challenge. Here are some practical tips to help you stay on track:

• Use a budgeting tools: Tools like Budget Spreadsheets, Debt trackers, or Envelope systems can offer a hands-on way to set up your budget, track your income, and spending. Check out a budget spreadsheet I use here

• Set realistic spending limits: Don’t try to be too strict—give yourself a reasonable spending allowance for things like dining out or shopping.

• Review regularly: At the end of each week or month, take a look at your budget and see if you stuck to it. If you overspent in one area, adjust for next month.

• Automate savings: Set up automatic transfers to your savings accounts to ensure you’re consistently saving each month.