How To Successfully Budget Your Money

Mastering how to successfully budget your money is like finding a treasure chest in your home.

Wondering how to successfully budget your money? This article guides you through creating a budget that works, not just on paper but in real life, too. When you budget based on your goals and values, you’ll find money in unexpected places.

Written By Tiffany Woodfield, Financial Coach, TEP, CRPC®, CIM®

When you’re budgeting based on what you want in life, it won’t feel restrictive. Instead, it will be just another useful tool to get you where you want to be.

Before we dig into how to budget successfully, let’s talk about why budgeting even matters. Because when you know why it’s critical, you’ll be more likely to stay on top of the process and less likely to quit. 

What is a budget, and why is it important?

A budget is simply a document you create that tracks your spending for a specific period. 

When creating a budget, you estimate your current and future income and expenses so you can make a plan for where your money goes. 

A budget is crucial because it helps ensure you have enough money each month to cover your expenses, and it clarifies where your money goes and if you have any “leaks” in your bucket.  Money leaks are areas where you are currently spending, but they aren’t fulfilling needs or wants and don’t provide any value.

What budgeting methods are there, and how do I choose one?

When choosing a budgeting method, the most important thing to consider is finding a strategy that is easy to follow and works for you. Some of the standard budgeting methods are:

50-30-20 Rule

The 50-30-30 rule suggests separating your take-home income into three categories:

50% towards needs, 30% towards wants and 20% towards saving, investing, and repaying debt. 

Your needs include basic groceries, transportation, utilities, lodging and the minimum debt payment.  When determining if something is necessary, be honest by asking, “Is this something I cannot live without?” 

A want is not essential, but you enjoy “extras” such as entertainment, travel, and dinners.  The final category is for repaying debt and saving or investing.  The sooner you repay debt, the more money you must dedicate to savings.  You will want to eliminate high-interest debt first. 

Zero-based Budgeting

Zero-based budgeting is where every dollar is accounted for each month and has a purpose.

You start at zero, then look at your expenses and add how much you will need to spend each month.  Any potential money left over is allocated to things you want and value. This method can be beneficial if your income fluctuates each month because you know how much you need to earn to cover your expenses. 

Envelope Budgeting

Envelope Budgeting is helpful because it makes you accountable for your spending by physically putting money into envelopes based on predetermined categories.

Once the envelope is empty, you can’t spend any more from this category.  While you can also do this online and track with an app, the idea is that you tend to spend less money when you physically have to use cash. 

Quick Videos: Try Out Values-Based Budgeting!

Find out what value-based budgeting is and why it feels so much better than traditional budgeting. You need to feel good about your budget; values-based budgeting will help you with this.

What kind of financial goals should I include in my budget?

When creating a budget, the financial goals are personal, but some of the common goals are:

• Repaying debt, starting with credit card debt first
• Saving for an emergency fund
• Saving for a long-term goal, such as a home or retirement
• Being able to retire and maintain your lifestyle
• Saving for shorter-term goals such as a vacation
• Having enough money to fund your kids’ education
• Having a set amount of money to invest

When creating financial goals, the most beneficial thing to consider is to be realistic, set a time frame, and review your goals regularly.  It is not enough to “set it and forget it.”  You need to be accountable and remind yourself “why” you are saving and making these decisions today for a goal tomorrow.   

How do I track my income and expenses effectively?

A budget is only as good as your tracking of income and expenses, which means you need to find an efficient way to track your spending. 

The most frequently used method is to use a tracking app on your phone and enter your monthly paycheque and all expenses.  If this isn’t your style, you can use a simple spreadsheet on your computer or a notebook.  What is critical is that you choose a method that you will consistently follow.  Assigning alerts to remind you to enter expenses will keep you on track.

There are several app options available, and many are free.  

How much of my budget should go into savings?

Twenty percent of your budget should go to savings and repayment of debt. Of course, if you can save more, this is fantastic as it creates greater flexibility for the future.

What are common budgeting mistakes, and how can I avoid them?

MISTAKE #1: RESTRICTIVE BUDGETING 

The most common budgeting mistake is creating a restrictive budget that you quit before starting. 

You need to include some wiggle room in your budget so it doesn’t feel repressive.  You may need to make minor changes to start and reevaluate if you can save more after you are in a new routine.  

MISTAKE #2: NOT ENOUGH CONSISTENCY

Another budgeting mistake is needing to be more consistent and accountable. 

Think of what happens if you start a new training program at the gym.  You are enthusiastic and eager to start the program; you pay the fees. But just one month later, you find that you’re not going and start feeling guilty.  

When beginning to budget, you want to remind yourself that any change is complex, and although you won’t see instant results, even small changes can result in a big difference in the future. If you go off track, return to the budget and be honest about your expenses. 

It may be easier to avoid being accountable and not writing down the truth of what you are spending, but it doesn’t change that the money is spent.  It is normal to make mistakes; just keep going, and it will get easier.

MISTAKE #3: EXCESSIVE COMPLEXITY

Remember to keep it simple. 

To budget, you just need to look at your monthly income, estimate your monthly expenses, consider your goals and priorities and evaluate if you spent what you said you would. Then, next month, assess if your strategy is working. 

Often, people think of budgeting as a vast mountain. They think that it’s just too hard.  But it doesn’t need to be! Keep it simple so that it stays easy and doable. 

MISTAKE #4: SELF JUDGEMENT

Finally, stop judging yourself for what you spend. 

Judging ourselves for what we spend makes us want to avoid looking at what we are spending.  Instead, remind yourself that you are normal if you feel guilty for spending; everyone has a different perspective on what is expensive.

It would be helpful to work on your subconscious programming around money and release the belief that you are somehow wrong. I recommend digging into blogs and books about money blocks and cultivating a positive money mindset. 

You can also read articles about manifesting money as they will help you cultivate the vision and mindset needed to release self-judgement and embrace a more expansive way of thinking about money.

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💎 Budgeting 101: How to Create and Follow a Simple Budget

💎 Money Management Rules: 50 30 20, 7-Day Rule, and 20/10 Rule

💎 How to Stick to a Budget (Even If You’re New to Budgeting)

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