Author | Laurie Whelden
For most people, money isn’t very fun to talk about. It’s one of those things, like politics, that can be considered taboo to discuss with those outside your household. Or for some folks it’s just plain stress-inducing. I, however, am all about talking money. I think talking about it helps to dismantle its power over us, and can give us a more realistic understanding of what it can do.
Prior to learning how to budget, I was fairly inconsistent when it came to spending. I would scrutinize my purchases and lay guilt trips for myself when I bought something “fun,” only to squander money away each month at restaurants with my friends and wonder why I was broke.
When I first moved in with my husband, we decided to open a joint bank account and pooled our money together (which at the time consisted entirely of student loans!). This has worked for us - but there are several options for couples we’ll discuss below. Once we got married, I got serious about budgeting. With student loan payments, a wedding to pay off, and monthly expenses I wasn’t sure were “normal,” I felt I needed some kind of game plan. We certainly have fallen off the wagon from time to time since we started - but for the most part, having this handy guide has been invaluable and has allowed us to finally feel in control of our finances.
There are several different programs available these days to help you budget. Most are apps for your phone that can also be used online. Some track and categorize your spending as it happens, like Mint. Many credit cards also offer this service. This approach, however, is reactive rather than proactive with your money. For some folks this is all they need to get their spending on track. But in my experience, this method made me feel guilty about how much I had spent, and didn’t end up giving me any more control.
The key to getting control of your money is being proactive - not reactive. Enter zero-based budgeting. This approach makes sure that every single dollar that comes into your bank account is given a “job” - so all money is accounted for. You know that feeling, when you look at your bank account and are amazed by how rich you are, and then a month goes by and you wonder where it all went? A zero-based budget planned ahead of time accounts for every dollar you’ve got - and lets you know when you’ve got the wiggle room, and when you don’t.
I’ve been a You Need a Budget (YNAB) convert for three and a half years now. This zero-based budget program does have a yearly fee (which is easy to budget for!), but comes with a lot of great features, helpful videos and documents, and even email help when you need it. It can be used as an app or on a browser.
For a no-cost option, some folks create their own zero-based budget in Excel. Morgan, of Humble Home fame, uses EveryDollar (created by finance author Dave Ramsey) and they offer a free version of their program. Says Morgan: “I had been using Mint, but decided to switch at the beginning of this year. I love the simple, light aesthetic (aesthetic is big for me!) and intuitive features.” The best part of zero-based budgeting is that you tailor it to fit your lifestyle, your goals, your priorities.
As helpful as it’s been, it took me a few months to get used to the zero-based method. Basically, when each paycheck or disbursement (whatever your income is) comes in, you break down that amount of money into varying categories for your month. No more and no less than that amount of money. Generally, you want to fill your most important cost categories first: rent/mortgage, groceries, utilities. Then as you are able, you fill in more categories. As time goes on, you may even be filling NEXT month’s bills with THIS month’s paycheck. It’s a great feeling!
As you start spending, you label each cost and keep track of how much you have left in that category. Most paid programs, like YNAB, import directly from your bank. Some require you to enter spending yourself. If you overspend in a category, you can balance your monthly budget by moving some money from another category.
But how do you know how much money to budget in each category? Where do I start?
Well, there are some costs in your life that are currently fixed, and some that are flexible. As you create and adjust your budget, you’ll make it fit your unique household. Here are the steps I recommend when starting the budgeting journey.
1. Figure out how much money you have coming in.
This may seem like a no-brainer, but before you know how much you can spend, you need to be sure you know how much is coming in. For folks with regular paychecks, this should be simple. But for those who have varying income, it can be a bit trickier. Following your budget closely is more important in this case, and prioritizing your expenses (which you’ll see below).
If you are in a couple and do not share 100% of your income, there are a few options you can take. Both persons could contribute the same amount toward shared expenses (splitting groceries, rent, etc. right down the middle). Or, if you have drastically different incomes, you could each contribute an equal percentage (say 75%) toward shared expenses in a joint account, and keep the remaining 25% in personal accounts.
2. Determine your expenses for the month by category.
There are a myriad of ways you can divide your expenses, but it’s vital to rank them by importance so you know where to allocate money first. For an obvious example, rent and utilities generally need to be prioritized over eating out expenses. Through YNAB I’ve landed on these five categories, which may or may not make sense for you. If you are not yet budgeting a month ahead, it’s also important to factor in what time of the month a payment may be due.
a. Immediate obligations - basics for survival and avoiding debt collectors, come up monthly
Rent/Mortgage
Utilities (Electric, water, internet, phone)
Groceries
Transportation (gas, tolls)
Car insurance
Car payments
Student loan payments
Credit card payments
b. True expenses - may not come up every month, but it’s important to have a cash stash just in case, because they will come up eventually
Auto maintenance
Medical/health (co-pays, prescriptions, gym membership)
Clothing
Baby needs (diapers, wipes, etc.)
House upkeep (can be lumped into the Misc. category)
Home improvement/garden
Miscellaneous (a stash to cover everything not in a particular category - AKA Target runs)
Pet costs
c. Giving
Charity donation
Gifts (usually for birthdays that come up that month)
d. Just for fun - the icing on top that gets cut first when you want to save a little more
Personal spending (each person gets a small spending stash)
Streaming services (Hulu, Netflix, HBO)
Restaurants/bars
e. Sinking funds - ongoing savings goals - monthly deposits in each category so that when the time comes you have what you need
YNAB annual fee
Holiday spending
Summer beach trip
Oil tank fill-up
New bike
House down payment
3. Evaluate to see if you’re living outside of your means.
If your household is bringing in $3000 a month, but your total cost of living is $3300, it’s time to evaluate where you can cut back. Or maybe you now realize you’re just breaking even each month, but you have a savings goal that you’d like to contribute to. With some tweaking, you may be able to free up some cash each month to start saving.
4. Be patient as you work through a few months with your budget.
Budgeting can be liberating, but it can take some time to get used to. Some folks check in with their budget every day - probably smart as you watch your categories get spent and see where you might need to slow down. At this point, I probably look at ours three times a week - and more frequently as we get to the end of the month!
Sometimes the hardest part is just saying “no” to your immediate wants. I still struggle with this! It’s good to remind yourself that while you may be saying no to an impromptu night out (remember those?), you’re saying yes to that summer beach trip or paying off a credit card for good. Feels pretty empowering!
5. Adjust your categories as needed. Be realistic.
If you overspend in a category, it’s ok! It happens! Take note of what category you tend to overspend in. When I first started budgeting, we overspent on groceries every month. We try to buy organic if we can, and my original budget just didn’t account for that. This guide (https://fns-prod.azureedge.net/sites/default/files/media/file/CostofFoodAug2020.pdf) was totally eye-opening to me, and I realized my budget was unrealistic. I adjusted our budget to meet our priorities. Some folks might not prioritize organic food, but instead love eating out. That’s great! In their budget, more money would be allocated to the dining out category, and the grocery budget would be smaller.
If it’s just the occasional overspending, you have to make up those dollars with another category. If you overspend $20 in dining out, you’ll need to pull it from another category that month to keep your inflow/outflow where it should be. It’s better for your money if you pull from a category in the same month, rather than borrow from the same category from the next month. For example, if we overspend on groceries, I tend to pull from our transportation or miscellaneous categories, rather than the next month’s grocery budget. It’s much better to start fresh in a new month.
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I know it may seem intimidating now, but budgeting can change your entire relationship to money. Since getting comfortable with our budget, we never have to worry whether we have the right amount of money in our account for rent or utilities. And when Christmas rolls around, I don’t have to worry I’m spending more than I should because the money is there waiting for me to spend it. And one of the best parts of budgeting is that I can finally enjoy spending on myself without guilt. I know when I have the money to splurge, and I let myself go for it.
Don’t be intimidated by the budget, or worry it’s going to make you feel bad about your spending. Just jump in! It’s YOUR money, use it how you want to!
Illustrated image credits: YNAB