How to Create a Budget or Money Plan -

Are you ready to master managing your money?

Creating a budget or money plan (which is the term we use around here!) might sound like the financial equivalent of eating your vegetables—necessary but not exactly fun. But here’s the thing: budgeting doesn’t have to be boring. With the right approach, it can be empowering, informative (of course!) and even enjoyable! But first things first, as we go through, I want you to work on changing the word budget to money plan in your mind! It may not seem like much, but just wait… Soon you’ll see just how powerful this little switch can be. Now let’s dive into how to create a budget or money plan that not only keeps your finances on track but also gives you peace of mind and, dare I say it, a sense of accomplishment.

Why Is Budgeting So Hard?

Before we get into the meat and potatoes of budgeting, I know you’re here for all the tips to get started budgeting but stick with me for just a minute and let’s talk about the fear of budgeting or getting crystal clear on your money that may be lurking in the back of your mind…

I’ve been told so many times by so many different people “I hate budgeting. It just doesn’t work for me.” And I get it. Sometimes we can have such frustrating experiences with budgeting and how we think about our money and particularly how we think about our spending, that we want to give up, walk away, crawl under the covers and never think about creating a budget again.

When it comes to money, budgeting can be one of the main areas that bring up so much confusion, frustration, shame, guilt, and all the other money trauma that lurks under the surface. Now I’ll stop right here and say I’m no trauma expert, but I’ve met enough people to know that money problems are rarely just money problems, if you know what I mean.

So let’s check in… take a deep breath, clear your mind, and think about budgeting.

How do you feel when the word is bouncing around your mind? What comes up for you?

A lot of the negative thoughts and feelings you may be having right now about restriction, feeling behind, guilty, shame, are the reasons I stopped budgeting and started creating plans for my money.

If just hearing the words money plan instead of budget changes the tone for you and you’re ready to get started creating a money plan to meet your unique needs then check out my masterclass and save yourself the time and frustration of budgeting!

At any rate, confronting those negative thoughts and feelings you’re carrying around about money are important to build your money confidence and wealth so don’t skip past them.

Why Is Budgeting Important / Why Do I Need A Money Plan?

Imagine trying to drive cross-country without a map or GPS. Sure, you might get there eventually, but it’s going to take a lot longer and involve plenty of wrong turns. That’s what managing your money without a budget or money plan is like—navigating blindfolded through your finances.

Budget management isn’t just about keeping track of your money; it’s about taking control. An effective budget or money plan requires you to understand where your money is coming from, where it’s going, and how to make the best use of it in alignment with your life and money goals.

And in case you need a little more convincing, there are so many benefits to budgeting:

Financial Clarity: Knowing exactly where your money goes each month.
Stress Reduction: Less anxiety about money when you have a plan in place.
Goal Achievement: Saving for big-ticket items, like a vacation or a down payment on a house, becomes easier.
Preparedness: Being ready for unexpected expenses with an emergency fund.

Budgeting isn’t just a financial task; it’s a lifestyle choice that sets you up for success.

Budget Rules of Thumb

Now that we know why budgeting / creating a money plan is important, let’s talk about some financial rules of thumb to guide you. I’m honestly not a fan of rules, especially when it comes to money, because there is no one-size-fits-all, and money rules of thumb make it seem like you’re doing it wrong if you don’t follow the rule.

In fact, if you’re really interested in creating your own money plan aligned to your goals and needs then check out this masterclass where I show you how step by step!

But I’m covering the most common money rules of thumb you might hear about here at a high level so you know what they are – but don’t feel bad if you don’t do things in line with a rule, alignment to your goals and needs is so much more important.

50/30/20 Rule: Allocate 50% of your income to needs (rent, groceries), 30% to wants (dining out, entertainment), and 20% to savings and debt repayment. The argument for this rule is to help you maintain balance and prioritize savings.
80/20 Rule: A variation for those who find the 50/30/20 split too rigid. Here, you save 20% of your income and spend the remaining 80% however you like. This rule is more flexible on the spending side but still emphasizes the importance of saving.
Debt Repayment Rule: Allocate at least 15% of your income to paying off debt, particularly high-interest debt like credit cards. This rule ensures you chip away at debt while maintaining a healthy budget.

These budgeting strategies can be useful for some, and if you decide one makes sense for your situation, just make sure you tailor it to your individual needs and circumstances.

An alternative money management strategy to the rules above that I use is actually becoming more and more popular:

Pay Yourself First: Before you spend a dime on anything else, set aside money for savings. Whether it’s 10%, 20%, or some other amount that works for you, make sure your future self is getting paid first.

With this money plan strategy, you’re setting yourself up for future success without completely sacrificing living your life now. We have to think about both our present needs and our future goals when designing our money plan!

Different Ways to Budget

There isn’t just one way to create a budget—there are so many! Finding the right method that works for you is key to creating a budget and sticking with it.

My favorite method is creating a money plan with the flexibility to fit your unique situation. You can learn more about this in my masterclass.

Here are some other types of budgets that might suit your style:

Zero-Based Budget: Every dollar has a job. At the end of the month, your income minus your expenses should equal zero. This method requires careful planning but can be very effective.
50/30/20 Budget: We touched on this earlier. It’s a simple way to categorize your money to ensure you’re saving and living within your means without overcomplicating things.
Envelope System: This is a cash-based system where you allocate a set amount of money to different spending categories (like groceries, entertainment) and place that cash in an envelope. When the envelope is empty, you stop spending in that category. This method can help control overspending.
Paycheck Budgeting: Also known as a paycheck budget planner system, this method involves budgeting based on each paycheck rather than monthly. It can really work for those who get paid bi-weekly or have irregular income.
Priority-Based Budgeting: This approach prioritizes spending according to your values and goals. You allocate more funds to what matters most to you, whether it’s paying off debt, saving for a house, or investing in education.

By understanding and experimenting with these different budgeting methods, you can find the one that fits your lifestyle and makes budgetary management easier for you to stick with.

Common Budget Categories

One of the most important parts of budgeting is understanding your budget categories. These are essentially the buckets you’ll divide your income into. It’s important your budget categories make sense to you and are tailored to show you clearly where your money is going.

A budget categories list might look something like this:

Housing: Rent, mortgage, property taxes, home repairs.
Utilities: Electricity, water, gas, internet, phone.
Transportation: Car payments, public transit, fuel, maintenance.
Food: Groceries, dining out, coffee.
Debt Repayment: Credit cards, student loans, car loans.
Savings: Emergency fund, retirement, investments.
Insurance: Health, car, life, renter’s insurance.
Entertainment: Movies, concerts, hobbies.
Health: Gym memberships, medications, doctor’s visits.
Miscellaneous: Gifts, subscriptions, clothing.

Having clear budget categories helps you track spending more accurately. It also allows you to identify areas where you might be overspending and need to cut back. Remember, an effective budget requires knowing where every dollar goes!

Planners for Budgeting

If you’re more of a pen-and-paper person, a budget planner could be your best friend. There are countless planners for budgeting out there, but here’s what you should look for:

Customization: Can you tailor it to your specific needs? Some planners allow you to add or remove categories, track irregular expenses, or set financial goals.
Portability: Is it something you can carry with you? A planner that’s too bulky might end up sitting on a shelf, unused.
Inspiration: Does it motivate you to stick to your budget? Planners with inspiring quotes, financial tips, or reward systems can help keep you on track.
Technology Integration: Some planners integrate with apps or online tools, making it easier to track your spending in real-time.

For the digital-savvy, there are also plenty of digital budget planners and budgeting apps that can act as your budget planner. Apps like YNAB (You Need a Budget) or Mint offer features like expense tracking, bill reminders, and goal setting. These tools can take the guesswork out of budget management and make sticking to your budget easier.

Final Thoughts on Creating Your Budget

Creating a budget or money plan doesn’t have to be a chore. With the right approach, it can be a powerful tool for achieving your financial goals and reducing stress. Whether you’re creating your personal money plan, following the budget rules of thumb, experimenting with different budgeting methods, or using a budget planner to manage your money, the key is consistency.

Remember, budgeting isn’t about restricting your spending, feeling guilt or shame about how you’ve spent in the past or being behind others who seem to have it figured out; it’s about making sure your money is working for you – that’s our number one goal around here!

With a clear plan and a commitment to budgetary management, you’ll find that the benefits of budgeting far outweigh any initial effort or discomfort.

So grab a planner, choose your categories, and start mapping out your financial future today!