Building a budget is one of the hardest things you can do – emotionally, at least. You might not immediately connect money and emotions, but we all have an emotional connection with our money, even if we don’t understand it.
That’s why you might logically know that you can’t afford to spend $200 on clothing every month or buy a coffee at Starbucks every morning, but you do it anyway. You might logically know that you should use extra cash to pay down debt, but you buy a fancy pair of headphones or a new video game instead.
Making a personal budget is just that: very, very personal. It’s not just about making sure you have enough money to pay rent every month. It’s about analyzing your feelings towards money and learning to take control of your own spending. In a lot of ways, going through this process can be like a bad break-up: things suddenly change, you get emotional, and you want to go back to the way things were. You can’t drunkenly call your bank account at 3 a.m., but you can impulse buy on Amazon.
So, how can you make a personal budget that will actually stick? It’s not as easy as just grabbing a random budget worksheet from the internet. Instead, you have to build from the ground up, using three guiding questions: what do I need to spend money on this month, what do I want to spend money on this month, and what’s left?
Let’s answer those questions now. Open up a Google Doc or an Excel spreadsheet (or, even better, a specialized app like You Need A Budget). Up at the top, put in the net amount of your monthly paycheck. This is how much money you have to divvy up – no more, no less. As you answer these questions, start creating categories and assigning dollars to those categories.
What do I need to spend money on this month?
Rent. Utilities. Car loan. Cell phone bill. Credit card bill. Health insurance premiums. These are your big bills, the things you need to spend money on each month or else face terrible consequences.
Not every bill should go in this pile. Netflix and Spotify, for example, are two monthly bills that are wants, not needs. The only things that should go in this pile are bills that you would face dire financial and personal consequences for not paying. These should be your priority, and they’re the easiest things to budget for.
What do I want to spend money on this month?
Coffee. Cocktails. Clothing. Video games. Netflix. These are the things you could do without – or, at least, spend less money on.
These are really hard to budget for. You may have no idea how much money you actually spend on clothing every month. The best thing you can do is go over past bank and credit card statements to get an idea of how much you do actually spend every month and plug those numbers in.
If you’re lucky, you won’t go over budget after putting in those numbers. That means you’ve been living within your means and you’re good to go on to the next question. But if you’ve gone over budget during this process, you need to go back and cut some spending out of your budget.
This won’t be easy, and you may find that you need to readjust this number throughout the month (and in the months to come). This is okay! The budget you create today is not written in stone, and it may take a few tries before you come up with the perfect balance.
This question isn’t about the money that’s left over – if you have any left over, that is. It’s about the categories we haven’t hit yet and the long-term goals you have. Maybe you want to pay down your student loan debt before you hit 25 or eliminate credit card debt or save enough money to go on a vacation.
Your job now is to figure out how those long-term goals fit into your budget. Do you put aside one hundred dollars every month until you’ve saved enough money to go on vacation? Do you take money out of your clothing budget to pay down credit card debt?
This step can take the longest and, to be honest, is probably the most emotional. In terms of a break up, imagine it like finding out your partner doesn’t want to have kids (and you do). In other words, this is some serious soul-searching, and you don’t need to have all the answers right now. Just starting to think about these questions is good step forward.
Making a budget isn’t a thing you do once and then forget about – it’s a constant process. For example, I frequently change how much money I’m dedicating to particular categories based on the circumstances that month. The thing that stays constant? I’m not spending more than I make.
The questions above won’t only help you kickstart a budget, they’ll also help you evolve and change it. Keep those questions in mind every time you think about your budget and they’ll help guide you to a financially responsible future.