How I Make My Budget
I’ll be honest, making a budget has never been easy for me. There’s a reason I called this page “Imperfect Budget” and it’s because month after month I made myself a budget for my expected expenses and then promptly forgot all about it.
The reason is because I was living my life! If I budgeted $400 for groceries, but already spent $375, I wasn’t going to deny myself eating just to stay in my budget.
Even for more discretionary things, like if a friend from out of town was visiting for the weekend and invited me out for lunch, I wasn’t going to say no just because I’d already spent my “social budget” for the month.
This is why I believe in imperfect budgets, because traditional budgets just aren’t realistic. Here are the ways some of the ways I manage my budget:
1. Tracking ALL spending
For a very long time (about 6 years) I tracked all of my spending. Every penny. Any income I had from my three jobs, birthday checks, money found on the street, and every single expense. I’ll admit that it did become kind of a compulsive thing for me to track expenses, but I still believe it’s an important part of everyone’s money journey. If you’re not tracking every cent, you may be ignoring problem areas in your spending habits.
For example, I always thought I had to cut down on my “social spending”, even though it was less than $100/month. But I felt totally fine paying $400 for my car payment because I considered it a necessity. I have no regrets about buying my car. I love my car. But I need to be realistic with myself about where my money is actually going.
The other point of tracking all of your expenses is that it gives you a really good view of your spending habits over time. For example, when I was single I paid about $175 for groceries every month. When my husband came into the picture, I started spending about $400. Get this: even moving continents I spent about the same amount of money on groceries every month. I know this because I tracked how much I spent every month.
The other benefit of tracking every penny is you know exactly how much you are spending and saving. No secrets here! By tracking all of my income and expenses, I knew the exact dollar amount of my savings every month. This helped me track my progress with my savings goals.
2. Tracking some spending
Now, I’ve finally reached a point where I have a pretty good idea of what my spending habits are like, and I don’t feel that it’s necessary to track every single purchase any more. I’ve graduated to a more lenient system.
Luckily for me, right now I have pretty predictable income and expenses. I get paid the same amount every month and, generally speaking, my expenses are the same. I have some fixed costs like: my car payment, cell phone bill, gym, and rent. But my variable costs are also about the same every month, so I don’t worry if they are a little up or down: groceries, utility bills, and gas.
However, I do still track my expenses, just not the ones that I have every month. I take my income, subtract my monthly expenses (car payment, gas, groceries, etc.), subtract the amount of money I want to save that month, and what’s left is for me to spend.
Here’s what that might look like for someone that makes $50,000 per year ($4,166.67 per month).
Necessities
10% contribution to 401k | $416.67
Healthcare | $200
Taxes | $600
Roth IRA | $200
Car payment | $400
Car insurance | $100
Gas | $50
Groceries | $250
Cell phone | $30
Gym | $25
Rent & Utilities | $1,200
Cost of necessities: $3,471.67
Non-necessities
Streaming service | $12
Subscription or other service | $15
Cost of regular non-necessities: $27
Monthly Budget
Gross monthly income | $4,166.67
Cost of necessities | $3,471.67
Cost of non-necessities | $27
Savings for vacation | $250
Leftover for spending: $418
In this model, I know I’ve already saved money for my 401k, Roth IRA, and vacation. I know I make enough money to cover my necessary and non-necessary expenses. I have about $400 left for any expenses that don’t fall into one of the categories above.
3. Savings
Savings are an incredibly important part of my budget. If you’ve heard “pay yourself first”, you know it means to put aside a portion of your income into savings, before spending any of it. Why? Because of life’s unexpected events. The reason I can say yes to having lunch with a friend, even if I’m over my “social budget” for the month, is because I have money in savings that I can dip into to pay for it.
Savings are not there for you to spend on the first thing you see. They are there to provide you a buffer for your expenses so if something comes up in your life, you have money put aside to pay for it.
A side note for those with irregular income:
If you work a job that has irregular income (basically anything in the service industry), you can still follow this general structure, you’ll just do it with percentages instead of dollar amounts.
You’ll want to have a very clear idea of your necessary costs, and determine whether your minimum monthly income will cover them. Then you’ll want to portion out your salary for spending and saving. Be very cautious not to overspend in the months that you make more. It’s easy to see a big paycheck and want to indulge yourself. But, in months where your income is higher, you’ll want to set aside larger amounts into your savings to pull you through the slow months. Think of it as “smoothing the curve” allowing the higher earning months to let you glide smoothly through the lower earnings months.
Action items:
If you’ve never tracked your expenses before, you should start by tracking ALL your expenses for a couple of months. This will give you necessary information about where you actually spend your money.
If you have a realistic estimate for your regular monthly expenses, follow the second strategy and set yourself a budget for “free spending” outside of your regular expenses.
Remember your savings. Part of any budget should be a portion of your salary set aside for savings. Savings allow us to both work towards our goals, and give us a reserve to dip into when life happens.
Your life may not be perfect, but it is imperfectly yours. The only way to live it is your way.
