How to Create a Simple Budget You Can Actually Stick To
On this week's episode of Money Confidential, get our experts' best advice to make budgeting a breeze.
When you say the word "budget," most people envision boring Excel spreadsheets or a lot of saying no to things that they really want to say yes to.
But as Money Confidential's financial experts point out, it's all a matter of perspective, and there are some really easy ways to shift your thinking and some great tools you can use to make a spending plan that really works for you.
On this week's episode, we gather our experts' very best advice on how to approach budgeting. For instance, consider calling it something other than "budget"—like your "I'm saving my money" plan or "say yes" plan. (Just keep in mind that you may need to "say yes" to some things after you save enough to cover it.)
If the budgeting apps or spreadsheets you've tried don't work for you, keep looking—there are plenty out there and you should be able to find one that works. And make time to journal not just what you spend but how you feel when you spend it—you might find trouble areas where you can shift your thinking and save money in the process.
Look for ways to automate savings—like having your check automatically split and a portion placed into savings before you even receive it. And try to plan ahead by looking at your spending for the whole month and the whole year, so you can see what's coming and plan accordingly.
Listen to this week's Money Confidential—"How do I create a budget I can actually stick to?"—for expert tips for keeping your spending on track. Money Confidential is available on Apple podcasts, Amazon, Spotify, Stitcher, Player FM, or wherever you listen to your favorite podcasts.
Margot: Any time money comes in. I spend it almost immediately.
Lisa: I felt the crunch of, you know, what's coming in, seeing what's going out, and not being able to save.
Vanessa: I have to use all that money to pay my bills. And then I'm left with nothing.
Stefanie O'Connell Rodriguez: This is Money Confidential, a podcast from Real Simple about our money stories, struggles and secrets. I'm your host, Stefanie O'Connell Rodriguez. And today we're looking back on some of our expert interviews to talk about one of the most loaded words in money management - budgeting.
When I say 'budget,' something probably comes to mind for you - maybe it's the image of an Excel spreadsheet that makes your eyes want to glaze over, or the voice in your head scolding you every time you pull out your wallet to spend money on takeout or coffee or a new pair of shoes.
And honestly, if that's what we're imagining every time we think about budgeting, it's no surprise that budgeting isn't something most of us look forward to, or want to make part of our daily lifestyle.
So to start, we're looking back on our conversation with Bola Sokunbi in episode 4, for a little perspective shift on budgeting and how we can make it something we actually want to incorporate into our lives.
Bola Sokunbi: When you think about budgeting, you don't have to call it a budget. Call it 'because I'm so amazing.' I'm going to build wealth.' Call it 'because you know what, I'm saving my damn money.'
That word budget sometimes just puts people off and it makes them feel like they're being punished, but your budget is not anybody's plan. It is your plan. It's you telling your money what to do. It's so, so personal.
Stefanie O'Connell Rodriguez: My budget is me telling my money what I want it to do for me. Honestly, I love that. Because at the end of the day, it's not about the money, it's about what the money affords you. So your budget is just your plan for affording the lifestyle you really want.
Which reminds me of something money expert Tiffany Aliche, The Budgetnista, shared with us in episode 1.
Tiffany Aliche: Honestly, Stefanie, I look at my budget as my say yes plan. Can I go on vacation? Yes. When you saved this amount of money. Budget, can I buy this car? Yes, if you make, you know, ask your boss for that raise. And so switching how you think about a budget that your budget truly is there to make those things that you want happen, but to do so in a way that's not going to harm the rest of your financial life.
Stefanie O'Connell Rodriguez: So given that your budget is your plan for making the things you want happen, it's not surprising that other people's budgets won't work for you. That's something I learned through a lot of trial and error.
As someone living in New York City, the rule of thumb to spend no more than 30% of my income on housing just wasn't realistic for a long time. Maybe for you it's paying for your health insurance out of pocket or a massive monthly student loan bill that makes you feel like so much of the advice you hear around budgeting just doesn't apply to your situation.
But instead of forgoing budgeting altogether, our experts talked about the ways we can experiment with our budgets and try out different systems and strategies, and eventually customize a money plan that actually works for us, based on the realities of our personal circumstances and unique goals.
Bola Sokunbi: I tell people the best type of budget is the one that works for you.
It could be an app that you like. It could be a pen and paper. It could be a spreadsheet. It could be a hybrid of all three. but the whole idea of a budget is you. As the CEO, you are the boss telling your dollars, your employees what to do. And you want to be excited to check your budget. You want to be excited to assign your dollars work to do, but the only way you can do it is if you hope you like the actual process of budgeting.
So I tell people, go to your app store, download the best reviewed apps—there are tons of them. And then start checking them out. You don't like the color? Delete it. It's not easy to connect your bank accounts? Delete it. You know what? 'I'd rather use Excel.'
Don't like this, don't like that, delete it until you get to the point where you've created something that you like.
Budgeting is not about perfection.
People get this idea because if you start seeing red, then, oh my God, I'm bad with money, but really your budget is a guide for what to expect. And as life happens, there's some things that you just don't know are going to happen. Like you get a flat tire or you have a health, a situation or your child, you know, breaks their arm, flying down the steps, like in my house, you know, things like that, unexpected things, but then you can do your best to plan.
And the whole idea is coming back to reflect. Okay. This budget didn't go quite as perfectly as I was told it was going to go on the internet. So let me look back and see what happened last month and try to readjust it for next month and just pursue progress, not perfection. Take that whole idea of perfect finances and throw it out the window.
Um, 'cause if it was like that, we would all be billionaires right now. So what can you do to encourage yourself to keep your finances top of mind?
'Cause it doesn't just happen. Um, does it mean setting, you know, three alarms a day to remind you to check your budget or to review your spending? Does it mean, you know, updating, when I was working in corporate America, I would use my work calendar that had all my meetings and I would set reminders.
Personal reminders to check my budget, to check my 401k deposit, to check my payroll deposits, to make sure that they were happening. And sometimes they're annoying, but I set them up in perpetuity so that they would always happen. So maybe it's leveraging technology to remind you. Maybe it's getting an accountability partner, someone that's right, you know, like-minded and really focused on their goals that, you know, we'll check in to see how you're doing. You know what can you do based on what you do about yourself and how you act to help you keep your finances top of mind.
Stefanie O'Connell Rodriguez: Speaking of keeping your finances top of mind, the most challenging part of budgeting, has got to be sticking with it. So in addition to setting reminders to keep you accountable, Bola talked about how writing down, not just your spending, but your feelings and emotions and circumstances around your spending decisions, can be transformative and critical tools for keeping you on track.
Bola Sokunbi: Spend some time with yourself and write it down. And I highly encourage doing the inner work. You know, it's closing the blinds, getting your cup of coffee, putting on your favorite music, whatever it might be, and just really trying to get in touch with yourself.
Why am I spending money this way? What's happening in my life right now? What's happening in my relationships right now? Well, what happened in my childhood? What money lessons that I learned from my parents, just, and there's no right answers here. There's no one type of strategy that you have to do.
There are studies that show that the process of journaling when you're trying to change a habit can really help. So you can have a spending journal. You can have an emotional journal where you write down how you feel. Each time you make a transaction, whether you like how you feel about the transaction or not, you've made it, write down how you feel and then check in and assess, okay.
When I bought this thing, this is how I felt. And maybe you start to identify trends and patterns about your behavior, and then you can create counteractions, right? So. For example, I'll be the scapegoat. Again. I used to go to, when I worked in New York City, there was an ice cream shop right downstairs.
Right. As soon as I was leaving, going home, I had to stop at this ice cream shop. And I realized I was stopping there because I was stressed. I hated my job. The ice cream was yummy, all kinds of random excuses, but I was spending money and it wasn't cheap ice cream. I was at $10 a day on ice cream. Right. So.
How I did the whole journaling and I realized, wait a minute, first of all, I'm buying a lot of ice cream. Second of all, there's another exit from my job. Right. I started using that exit. I stopped thinking about ice cream because who wants to walk all the way back to the other side of the building to go to the ice cream store.
And it sounds stupid and trivial and silly, right? But that helped me change a behavior that I felt like I couldn't control if I walk past that store.
Stefanie O'Connell Rodriguez: I really love this story because I think it really illustrates how much of our understanding of money has been built around the idea of numbers and spreadsheets, but really, mastering money is about the thoughts and the way our lives and habits are built.
So I love your point about doing the inner work. A spending journal really gives space for these thoughts and feelings in a way that one box on a spreadsheet cannot capture. Because everybody knows that they're supposed to save money, right? Like it's not new information. Everyone knows they should spend less than they earn, but like there's a reason it's not happening. And you can't really get to the reason if you only have room in this like little spreadsheet that doesn't account for all of this complexity.
Bola Sokunbi: I totally agree. I mean, everything is so easily accessible, right? But if you can give yourself time, it could be seconds, minutes, hours between when you decide to make it a transaction and you actually hit the click or buy, whatever it is, button, it can help you make that decision.
It's important to recognize that spending money is not bad, right?
So looking at your budget and saying, 'Okay, I'm going to designate this amount to my automated savings. And I'm going to give myself this amount to splurge, have fun, go out with my friends, go shopping, and then I'm going to give myself all this other money to go towards my expenses, my other goals, et cetera.
And so knowing that you now have this category in your budget where you can treat yourself or do the things that you want to guilt free, that can also help you overcome those emotions around overspending or creating your strategy. So binding that automation with giving yourself a chunk of money within your budget that's realistic.
It's so, so personal. So you have to figure out how you can make it enjoyable and also make it easy. Right? You don't want to be spending 10 hours a day on your budget. A quick five minute check, three minute check once a day can make all the difference in helping you stay on track.
Stefanie O'Connell Rodriguez: Making a budget that's both easy and enjoyable is something I can definitely get on board with. But I also recognize that a budget isn't always about the sexy things - like the splurges and the dinners out and the vacations - it's also about the basics like housing, food and healthcare. And it's hard to even think about the fun stuff before those essentials are taken care of, so in episode 1, Tiffany Aliche, the Budgetnista, gave us a breakdown for how to get started.
Tiffany Aliche:It starts with a budget and a simple, simple budget is just money in money out. And ideally money in, in a month's time, money out in a month's time, just listing everything you spend money on. How much do those things cost you a month on average? How much are you making in a month?
And then if the numbers are not what you're wanting them to be, okay, well, what's on my money out list, what are some things I can change? Is there enough money coming in on my money in list, what are some things I can change? So at its bare bone basics, you start with a budget.
Stefanie O'Connell Rodriguez: How do you know what expenses to tackle first?
Tiffany Aliche: So first and foremost, I wish somebody would have told me that you want to look at your health and safety expenses first. So these are the expenses that you need to maintain your health and maintain your safety.
So your rent and your mortgage might be a health and safety bill, you know? Um, I have, um, childhood asthma, so it's like, okay. You know, sometimes I need my inhaler. So that's a health and safety bill. Food. That's a health and safety expense you know, they say on the plane ride that you put your mask on first because if you put your baby's mask on first and they're fussy and then you lose consciousness. So now you are not protected, but neither is your child because you're not there.
So bill collectors can't get paid if you are not in a good spot. So take care of your health and safety expenses first, and then you can get to them.
Stefanie O'Connell Rodriguez: Like Bola, Tiffany also talked about the benefits of automating things like savings, debt payments and bills as a strategy for actually following through on whatever budget you set.
Tiffany Aliche:Well, I believe that automation is the new discipline. Automation doesn't get an attitude. Doesn't get hungry. Sassy. Automation's not tired. So I set my automation up beforehand. So my husband is like, he used to call me the Budgetnista bully. I was like okay, how could I be nicer about it? I realized that I'm the spreadsheet girl. I love it. You know, but he's totally not. So I said, okay, let's see if we could do budget without budgeting. So I told him, go to HR, go to your, um, you know, whoever does your payroll and how, how many times can you split your paycheck?
He's fortunate that he could split it up to four times. So now he doesn't get all his money in one account, like before, they put some in our joint long-term savings account. And they put some in his personal savings, they put some in our joint checking account for bills and they put some in his personal spending.
So now when money comes in, I'm not like, did you transfer money to the bills account? Did you transfer money to the savings account? He split it before he get it. So you can literally create a just bare bones, simple budget by...if your, if your job allows to have your money come in and split it before you get it.
Or you could do it yourself, have it land in one account and have that account make the transfers for you after it lands. But that is a way to keep on top of things and automating that system is just really going to help. Like I automate everything so those bills get paid. I don't have to worry about it. My job is just to make sure every month, is there enough money? I know how much our bills are. I'm like, is there enough money in that account for the bills? Yes, there is. My savings is saved automatically. So automation is a new discipline.
If you set up the automation that you could check on it about once a month, just to make sure that it's running smoothly, but you don't have to have like all the discipline and doing all the tweaking yourself.
Stefanie O'Connell Rodriguez: Now speaking of building a budget that's customized to you, in episode 11, we spoke to Tasha Cochran, who offered yet another budgeting strategy that could be particularly helpful to those of us whose incomes or expenses change a lot from month to month.
Tasha Cochran: So I recommend, regardless of where your income comes from that you budget using a one-year spending plan, so you have your whole year laid out in front of you. And what that is, is a proactive form of budgeting. So instead of reacting to your bills as they come in, you make some plans for what you're going to do with your money over the course of the next year.
And it also helps you really see as each month goes by how your financial decisions this month are affecting your finances, six or eight or 10 months down the line, which helps us make better financial decisions in the moment. But it's also a really powerful tool if you have an unpredictable income, because despite the fact that your income is unpredictable, your expenses are 100% predictable. Your electricity bill is still going to be due, your mortgage or your rent will still be due, so you know that those things are coming. So with an extended spending plan, where you're looking at multiple months at once, you can start setting aside money now for those months when you know that your income is going to drop.
Stefanie O'Connell Rodriguez VO 16-8: In episode 11, Tasha and I talked about a listener who was navigating finances after a divorce. Like any major life change - whether it's a break up or a job loss or a move - there's going to be a big impact on your finances, so it's important that we think of our budgets as living, breathing documents that reflect our living, breathing realities. Our budgets should change and evolve as we do, to support whatever new goals and circumstances we're navigating.
Tasha Cochran: She's got to understand what's going on with her budget because her budget has changed dramatically. She can't rely on last year's budget because she was still married at the time.
And now she has a completely different budget. So she's got to understand, okay, how much is my income? What do my expenses look like? And what is my budget surplus? how much discretionary income does she have left over at the end of the month after she has met all of her required expenses? So that's number two, but number three, is balance...all of that discretionary income won't necessarily be available to go towards debt payoff because she's building a life at the same time.
So I want her to also list out the essential expenses that she needs to incur to finish building up her household. Does she need furniture? Does she need utensils? Does she need a hammer and a screwdriver, a drill, like things that we all kind of take for granted?
When we're in a combined household, but you split a household and suddenly those things that you used to have to grab that you need to live aren't there anymore.
And then she can decide how much of her money she wants to put towards paying off her debt, how much she wants to put towards meeting current needs and how much she wants to put towards spending for joy right now, because some of your money should always be reserved for joy.
So many people get into a cycle of extreme frugality and then binge spending that then slows down their progress because they take on unexpected debt. And instead of just giving themselves permission to say, hey, you know, I do love to eat out once or twice a month. I don't want to go overboard and eat out every day because I know that that will increase my debt, but what if I decide, well, I'm willing to spend $25 a week on eating out. And so whether I eat out have tiny little treats once a week, or I save all of that for a really nice restaurant dinner twice a month, once a month. That is okay.
It's okay to spend for the things that bring you joy, because that makes your spending plan something that you can stick to for the long run, because you get your small pleasures and you also get the joy of watching you hit your financial goals, watching your debt decrease, watching your nest egg increase.
Stefanie O'Connell Rodriguez: The best budget is the one that works for you and supports your needs, values and priorities. If your budget isn't doing that, don't give up on budgeting, try a different budget - whether that means adjusting how much you allocate to certain categories or trying out different money tracking strategies - an app, an Excel spreadsheet, pen and paper - until you find one that actually keeps you accountable to your spending plan.
Reviewing your spending and seeing the numbers laid out in front of you, forces you to get real about where your money is going, whether your actual spending is aligned with the goals and priorities you've set for yourself, and whether you're spending money on things you don't really care about at the expense of the things that you really do.
It's far easier to make changes and realign your spending with your goals when you can identify exactly what's keeping you from reaching them. And it's far easier to stay accountable to those priorities when tracking your financial inflows and outflows is a regular practice.
Remember, your budget is your say yes plan, it's your roadmap to affording the lifestyle you want, it's you telling your money what you want it to do for you - and that is certainly something to get excited about.
This has been Money Confidential from Real Simple. If you have a money story or question to share, you can send me an email at money dot confidential at real simple dot com. You can also leave us a voicemail at (929) 352-4106.