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9 Steps to Create a Realistic Budget

As we all stay home and practice social distancing, I’m sure many of you, like myself, are finding you have more time on your hands. What’s something you’ve wished you had time for but always put off? For me and so many of our clients, it’s finally taking the time to build a realistic budget and determine actual spending. I’ve always tracked what I spend, but I haven’t necessarily followed a budget. During this uncertainty, and with more downtime, I took it upon myself to create a budget and understand better how I spend my money. If any good can come from this isolation, maybe making a realistic budget could be it! While there is a lot we can’t control, developing a budget is a great way to pin down what we can. I’ve created nine steps while developing my budget to help you do the same.

1) Find a resource to create your budget

First, adopt a method that works for you to create and stick to your budget. Some people find that a simple spreadsheet is best for them, or even just writing it out on paper. For me, I think Mint is the best budgeting application out there. You can download the app or use their website, and it’s completely free! You connect all of your bank accounts and credit cards, and it pulls all of your spending for you to categorize. No more time spent recording each purchase from last month’s bank statement. If you want, it will even alert you when you spend over budget in a category. The most important thing is to find your best method. I’ve also heard good things about youneedabudget.com, but there is a cost associated with it. Any budgeting method that keeps you on track is worth its weight in gold!

2) Look at all of your spending for the last few months

Before you dive into actually creating a budget, take a look at your spending the last few months to get a better idea of your overall average spending. The quick and dirty way to figure this out is to get year-end credit card statements which give a good idea of yearly spending. Simply add your other expenses that are not charged to the credit card to figure out total spending. With these answers, you can set a budget with more realistic expectations later on.

3) Figure out your average income each month

In order to create a budget, it’s essential to know your income. Calculate all the income you bring in—including salary, rental income, alimony, child support, retirement/investment distributions, and more. Having set a dollar amount for income, we know that your budget cannot exceed it. If you have variable income, you can either take your monthly average or the lowest amount. I always recommend being more conservative when you have variable income.

4) List out all your non-discretionary expenses

Now it’s time to start the budget itself. List out all non-discretionary expenses, which means expenses you cannot live without. Below is a list of common non-discretionary expenses to help you make your own list. Once you have listed yours, add up the total.

  • Housing, bills: either rent or mortgage, plus necessary house bills like water, electricity, etc. Notice, this does not include the cable bill.
  • Debt payments: credit card debt, student loans, car payments, HELOC payments, etc.
  • Insurance: health, life, long-term care, and disability insurance
  • Car expenses: think of what you need to maintain a healthy car, car insurance, repairs and gas
  • Medical care: doctors’ visits, prescriptions, and over-the-counter medicines
  • Groceries: basic grocery needs (maybe leave off holiday crab legs for this)
  • Childcare: day care, school, and anything else that your child absolutely needs
  • Other bills: basics like phone and internet only
  • Pet expenses: food, care, and vet costs
  • Anything else that is absolutely vital for you to live

5) List out all of your discretionary expenses

Create another list for your discretionary expenses. These are expenses that are not necessary to survive, but are more luxuries. You could get rid of these if you absolutely needed to. Discretionary expenses will vary greatly between individuals and families, but here is a list of ideas to start. Many people forget to take into account irregular discretionary expenses that don’t come up every month, like gifts and donations. Divide your yearly average for things like holiday gifts by 12 to budget for them monthly. Once you have listed yours, add up the total.

  • Gym: local rec center or gym membership, or your tennis league
  • Personal care: from manicures and massages to chiropractic visits, skin/hair care, etc.
  • Hobbies: art classes, book club expenses, golf, guys’ poker nights
  • Entertainment: think movie theaters, concerts, plays, and books
  • Restaurants: this is usually my largest discretionary expense
  • Alcohol/bars: yes, this is in the discretionary category—you can live without it
  • Coffee (Shops): the $7 fancy latte that I love and do not need
  • Clothing/shopping: it’s time to face your online shopping habit
  • Cable: it also may be time to reign in the cable package your husband loves so much
  • Gifts/donations: even though it’s noble, you still must be accountable for this spending
  • Anything else that you spend money on

6) List out all of your savings

I may be biased, but I hope you put a lot of effort into this step. List out all of the ways you save each month; this can be your emergency fund, 401(k), Roth IRA, home savings account, or anything you are saving for each month. If you are currently in retirement, and no longer saving, you can skip this step.

7) Analyze your list

Go through every category on lists and highlight the areas that are higher than you imagined. I promise there will be some categories that surprise you. You may realize you don’t want to be spending so much on them. In this step, identify what is actually important to you. For example, if you are less than thrilled to find how much you spend shopping, instead allocate that money to more fulfilling areas, like entertainment or family activities. Think of this as you go through every category. Are you proud of what you see, or are there areas you want to change?

8) Create your budget

Re-write your lists for non-discretionary, discretionary and savings, without the dollar figure in each category. Going through your list again, consider a new amount that you want to spend (or save) for each category. Make sure this amount is realistic and attainable. You don’t need to make huge changes right away, it’s okay to start with smaller adjustments. If you decide to use Mint, you can easily plug in a budgeted amount for each category.

9) Re-evaluate and alter as needed

Like I said in the previous step, start small, and know that you can always adjust your budget as needed. I recommend to create a budget, try to stick to it for a month, and then determine how it works for you. Was it too restrictive? Too lax? The most important thing about a budget is for it to be realistic so you actually keep with it.

Here at Amy Noel, Inc., we love to help clients find more control over their cashflow, expenses and savings. Beyond this blog post, we have many more resources to help you create a realistic and successful budget for your family. Give us a call today to find out how we can help further!



The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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