5 Quick Steps to Create a Budget

Ugh!

The B-Word!

I know, I know, you don’t want to think about a budget. It feels restrictive and squeezes all the fun out of life. If you’re feeling that way it’s completely normal. But it also means you may be holding some limiting beliefs and money blocks around what a budget can do and how it’s the gateway to achieving your financial dreams. Uncover some of these blocks here (before attempting to create your budget).

Because of the bad rep that budgets always get, I tend to not like using the word. So although I’m referring to it as common practice, you should come up with your own name for your budget so that you can begin to shift your mindset around using one. Whether it’s your Abundance Plan, Money Master Plan, Financial Peace Maker, Money Builder… you get the point! Find a name that lights you up and makes you super excited to create and stick to your budget.  

One of the biggest reasons why people don’t have a budget is because they believe it takes a lot of time to create one. But really, what is a lot of time? Let’s say it did take you 10 hours to create. Where would you be 6 months from now if you didn’t carve out those 10 hours today? Perspective is everything. I’m sure your future financial self is worth 10 hours.

Here are 5 quick steps to create a (insert your new B-word here):

1. Pull all of your spending for the last 3 months

You can do this by downloading your transaction history from all of your accounts (ie. chequing and credit cards, etc.) into a spreadsheet. Or you can use your printed account statements and manually enter the amounts into your spreadsheet under the respective spending category (as explained in Step #2 below).

2.  Allocate each transaction to a spending category

Create spending categories for your expenses (ie. eating out, groceries, cell phone, utilities, etc.). The key is not to have too many categories because then the process becomes overwhelming. Allocate each transaction to a spending category.

3. Total up each category and then divide it by the # of months of spending

So if you pulled 3 months of spending in Step #1, you would divide the total in each category by 3. This will give you your average monthly spend in each category.

4. Create your new budget

Go line by line and review the average spend in each category. Determine if you would like to spend more, less or the same amount each month going forward. This will become your new budget for that category. Enter your budget number into a new column on your spreadsheet.

5. Make sure your budget balances

In addition to your monthly expenses, make sure you have captured debt payments and your savings goals, especially for your emergency fund.

Your budget balances when: Monthly income – monthly expenses – monthly debt repayment – monthly savings = 0

If your equation is in the negative it means you are overspending and need to adjust your categories. If your equation is in the positive it means you have extra money to allocate. You don’t want to leave these dollars floating around in your chequing account and then spend them. Instead, allocate them to either debt or savings.

Follow your budget and see yourself achieving your financial dreams with your debts paid down and your savings overflowing!