How to make a Budget Plan + worksheet (the Ultimate Guide)

Spending money today is easier than ever before. With payment methods like tapping a credit or debit card, PayPal, Apple Pay, and others, people are mindlessly parting ways with their cash.

I know, it can get frustrating at times, you work hard but at the end of the month, you have no cash left.

So, how do you keep control of your spending in this increasingly cashless society? You do it with a budget.

Working with a budget allows you to stop living paycheque to paycheque and take control of your finances.

The four main goals of creating a personal budget are:
1. Take control of your spending;
2. Get out of debt;
3. Set up an emergency fund;
4. Save a portion of your earnings to achieve financial goals.

But why do many people think budgeting is hard? It is not – creating a budget is all about writing down your expenses and keeping track of them. That’s simple, isn’t it?

On this guide

  1. What is a budget and why it is important to have one
  2. Tips to help you stick to your budget
  3. Will a monthly budget really work for you?
  4. Budget using the 50/30/20 rule
  5. How to prepare your budget
  6. How to budget when you are broke or money is tight
  7. The budget game challenge

What is a budget and why it is important?

A budget is a plan that helps you understand how to take control of your money.

The process is simple; you will make a list of all the money you have coming in, such as salary, commissions, child benefits, etc.

Then you will write down all your expenses and compare against your income.

If you spend more than what you make there is a problem; that’s where understanding your spending habits becomes really important.

Most people that get in debt don’t have a budget; they go through their days spending and at the end of the month they don’t know where their money went.

Why is a household budget important?

With a budget, you know what you can and cannot spend.

For example, last week my eight-year-old son came to me and asked me to buy him a “Takaratomy Beyblade” (a Beyblade is a toy spinning top). My son has about seven different Beyblades he no longer uses, but there he was asking me to buy another one because his friend said Takaratomy Beyblades are better.

What would your answer be if you were me?

Our expenses often spiral out of control when we don’t have a plan. Without a plan, we are a lot more likely to make impulsive purchases because of an ad we saw, or because we want to fulfill a desire that’s not really what we truly want.

ReadHow to get out debt

Because knowledge is power

Here is a question for you – How much do you spend per month on groceries? There was a time when I did not know the answer to this question but it is an important one.

Find out how much allocate to each category of your expenses such as food, housing, transportation, insurance, and so on. That amount will not set be in stone and can change from one month to the other, but the key is to know how much you are spending per month on each expense category. Else, you run the risk of spending all your money but have more bills to pay.

Because you need an emergency fund

An emergency fund is an amount you should set aside in case an unexpected event happens such as needing a new roof, an urgent car repair, or any other event that requires you to spend money, but that you cannot predict.

No matter how much you plan, life will throw a curve ball; I have been there more times than I can count. An emergency fund protects you from having to go in debt to cover such expenses.

Because you need to set up financial goals

Financial goals keep us moving forward vs. being stuck in a bad financial situation. Make a list of all the goals you want to accomplish, both in the short and in the long term. Short-term goals are goals you can achieve in less than a year; long-term goals such as savings for the purchase of a house, are goals that take more than one year to achieve.

Tips to help you stick to your budget

OK let’s be honest – budgets are simple to do, but they are not fun, especially if it means you have to restrain yourself on your spending but remember the big picture.

What is the big picture? To keep out of debt and achieve your financial goals.

To make the daily effort, we need a purpose; we need to know WHY that goal is important to us; it’s not about keeping up with your budget, it’s about achieving the goals that are important to us.

Automate

For those of you earn a salary, have you ever wonder why income taxes are automatically deducted from your salary before you get paid? It’s because it makes it easier to pay taxes; if you were to receive 100% of your salary and then had to deal with making payments separately, tax season would be a lot more stressful than it is today.

Use automation to help you save money. Set up a separate saving account so that part of your earnings go directly to your savings accounts leaving only enough cash in your chequing account to be able to cover your monthly expenses.

Ideally, you will want to have a separate saving account for each saving goal, but make sure the bank is not charging you monthly account fees on those accounts.

If you are trying to save money to buy a home, or a car or any other major purchase, set up a no-fee saving account and have a portion of your earning directly forwarded to the saving account.

I bought my first house with an employer-funded saving plan. I deposited 6% of my earnings every pay, and my employer matched that amount. So that was 12% of my earnings being saved every single pay.

In a few years, without paying too much attention to it, I had enough money to fund a down payment to buy a house; saving that money did not cost me any emotional effort because it was automatically deposited to a separate account.

Choose carefully whom you spend time with

If you are working out your budget, and are trying to get out of debt or grow your savings, but the friends you hang out with are big time spenders then you probably need new friends.

Track your progress

The best way to stick to your budget is by keeping motivated, and nothing gives a better motivation than seeing what you have accomplished.

For example, if you set out a goal to save $20,000 to buy a car; initially that might seem like a big number, but if you break out that bigger goal into ten smaller goals of saving $1,000 per month, all of a sudden that becomes doable.

You can set milestones along the way; for example, you can celebrate when you reach the first $5,000. The idea is to track your progress and celebrate the smaller milestones so that you can keep motivated and moving forward.

Grant yourself the occasional indulgence

This one is very important. If having a latte makes you happy, have one, but make it a treat; it’s like rewarding yourself for a job well done. What is not right is to mindlessly spend money on things we don’t need.

Some people could say shopping makes them happy; let’s be careful with this one. Shopping does not make anyone happy, it is what you shop that does. What does this mean?

Find out what makes you happy and occasionally go for it, but try to tie that treat as a celebration for sticking to your budget.

Would a budget work for me?

A budget will definitely work for you, or anyone, but let’s admit it, we are humans and we often tend to take the easy way out. Manipulating a budget worksheet is not going to fix our financial troubles.

Much like learning to how to drive, understanding how you spend money takes time; developing those habits takes practice, but after you’ve done it for a couple of months it will become second nature.

For example, when my wife became pregnant, I started noticing pregnant women everywhere. Was I in the middle of a new baby boom? No, my brain had just become tuned to the concept of becoming a new parent, and all of a sudden I was noticing all the parents-to-be out there.

The same applies to your money; when you start tracking your expenses, pay attention to what things cost, and what you are spending on; soon your brain will become tuned to better spending habits.

Preparing your budget

The secret to a successful budget is in setting realistic goals, expectations and sticking to them.

Use our FREE Printable Monthly Budget Planner to set up your budget. You can use this worksheet to plan your Family budget or to manage your own personal finances.

After you have downloaded the budget planner template, start out by filling in the information you know. Then look at the items you left blank and find the missing information by reviewing your bank and credit card statements

You will want to review bank and credit cards statements for the last three months.

For cash spending such as lattes, lunches, taxi fares, etc. keep a record for a two-week period to a month, or until you have a good record on how much you are spending on a monthly basis.

Occasional expenses

Some bills are due once a year or every couple of months such as vehicle maintenance, clothing, or water bills; for those go through credit card and bank statements and set up an allocated amount per month.

Adding it all together

Once you have completed filling out expenses on the worksheet, subtract the expenses from the income; the result will give you a snapshot of how you are managing your money.

What to do if you are spending more than what you earn

When your expenses are higher than your income it means you are getting in debt; if your credit card balance seems to increase every month, or if you struggle to pay some bills, this is a sign that you are spending too much.

Many people who are in that situation tend to think “I am not making enough; if I could just make more per month…”.

While making more money can help, there is a faster way that does not require you to increase your income. It’s changing your spending habits.

What could you cut back?

Chances are you already know the items you are overspending on, but you may not be sure yet how to tackle the problem. Or it may be that you don’t know there is a spending problem, but you recognize the symptom of not having enough cash left at the end of the month.

Running out of cash is the result, but the reason why you are running out of cash is on the expense section of your budget.

Review it in detail and identify the things that are not a must.  Perhaps you are spending $60 a week of lunches, or $100 a month on the gym membership, or another $150 on subscriptions that you can do without for a few months.

Separate your needs from your wants; however, if you still are finding it hard to work out what you can cut back, read the How to Get Out of Debt guide for ways how to live within your means.

What if your income is higher than what you spend

If your income is higher than your expenses, you can focus right away on paying off debt or saving for a future goal.

Smart tip:The best way to save is by having a part of your income automatically sent to a saving account as soon as you get paid.

Before you know it your savings would accumulate to a sizable amount without you even realizing it because the money was automatically sent to a different account.

When you get a pay increase, bonus or an income tax refund deposit the amount directly into your savings account or if you have consumer debt, allocate the amount towards paying off your debts first.

A great tool to learn how to successfully budget is The Budgeting Planner.

Budget using the 50/30/20 rule

Using the 50/30/20 rule you allocate 50% of your income to covering your needs, 30% on wants, and the remaining 20% goes to your savings. But how do you determine what are needs and what are wants? Keep reading

Needs

Needs are the things that are a must; these include rent or mortgage payment, groceries, insurance, car payments, utilities, minimum debt payments. Your needs do not include a daily latte, coffee, alcohol, Netflix or other unessential subscriptions.

Wants

Wants are things you would like to do or have such as eating out, going on an expensive vacation, designer clothing, a brand new car, a bigger house, or unessential home renovations.

How to budget when you are broke or money is tight)

Being broke is the result of making bad financial decisions that affect personal finances.

I often hear people say that a budget would not help them because they are poor, but the opposite is true.

Here is what being broke means

  • Living paycheque to paycheque;
  • Carrying consumer debt but do not have the money the debt in full;
  • If you do not have an emergency fund, you are broke;
  • If you cannot save at least 10% of your monthly income, you are broke.

I spent most of my life being broke but the thing is, I thought I was fine. The higher my income got, the more broke I became. Why?

Because the more money I earned the more expensive my spending habits became.

By coincidence, I ended up owning three houses, two of which I rented out. This forced me to be disciplined with my spending and yes, I had to work with a budget.

Let’s look into how to work with a budget if you are broke:

 Prioritize your spending

When I found myself carrying three houses, and dealing with tenants, mortgage payments, property taxes, and monthly bills, I realized how a small change in my income could mean a big deal to my monthly finances, so I needed a plan.

I went through the last two months of bank and credit card statements and listed out all my monthly spending on a sheet of paper. I found that two months of statements was better than one month because I did not want to miss any monthly expense.

If you don’t control your money, it will control you

Money was tight, so I knew I had to place a higher priority on covering the essential monthly expenses; these include:

  • Mortgage/Rent
  • Gas/Electricity
  • Water
  • Home Insurance
  • Food
  • Transportation

Identify areas where you can cut back

If you are running a $200 deficit every month and your expenses include $100 spend on a Gym membership plus another $100 per month on night outs these are easy targets that you can cut back on.

Some more of the easy adjustments you can do it eat out less frequently, cut out beers, or alcohol, and cancel subscriptions to music apps, or other entertainment apps.

However, if your budget shows larger shortfalls such as a $1,000 monthly shortfall, you will need to take a more aggressive approach like get a second job or negotiatemore favorable payment terms on your car payment, the monthly fee you pay on car insurance, or your monthly mortgage or rent payment.

Hide your credit cards or don’t use them

If you get in debt when money is tight, things will worse before they get better. The key is discipline in your spending, but using credit cards is too easy, and they won’t get you out of your money troubles. Hide them, and follow your budget closely instead.

Find a way to increase your income

What you earn must be higher than what you spend; that’s the number 1 rule. Cutting back on your expenses helps, but a better way to solve your financial problems may be to increase your income.

And when it comes to increasing your income, the easy way is by asking for a raise or negotiating a better salary for yourself.

You can find out step-by-step instructions about how to negotiate a better salary for yourself by registering to our Salary Negotiation Online Course.

Here are more ways you can increase your incomes without having to work overtime or get a part-time job.

  • Rent out a spare room using Airbnb.
  • Get paid to let people borrow your car
  • Rent out an unused parking space
  • Sell your smartphone pictures

For a comprehensive guide on how to increase your income read 115 Ways to Increase Your Income.

Sell something

It’s no secret, someone’s trash is another person’s treasure? By selling your used items on sites like Craigslist, eBay or Amazon; you’ll be able to clear your basement or storage room and make money in the process, so why not?

The budget game challenge

No matter where you are with your financial goals, preparing a budget will help. Over the next few days and weeks challenge yourself to understand how much money you are spending on a monthly basis and on what you are spending that money on.

Here are the steps that will help you get there.

Step 1:  Name the price: Go around your home and name the price of each item in your home, especially in the kitchen. What does it cost you to drive to work? How much do you spend on lunches?

Step 2:  Prepare a budget– and make sure you are earning more than what you spend. If you have a deficit, find ways you can either increase your income and/or reduce your expenses; don’t stop until you are earning more than what you spend.

Step 3:  Set up an emergency fund (1-3 months of income if you have credit card debt or 6 months of income if you have no consumer debt)

Step 4:  Pay your bills on time – Use our budget planner worksheets to keep track of your spending and pay your bills on time.

Step 5:  Pay off credit card debt (use the Debt Snowball Method)

Step 6:  Make a financial goal – This could be something such as buy a house, a car, save for a family vacation.

Step 7:  Save a portion of your earnings every month and repeat.

No matter what stage you are in the best time to start is now. Your ultimate goal should be to save 10% – 20% of your earnings every month. A budget, discipline, and dedication on your part will get you there.

The bottom line

You can think of a budget as a tool that will make things easier by helping you understand your income, expenses and achieve your financial goals. The first step is recognizing that you do have control over your finances.

When facing money troubles it is easy to put blame on having a low income, things being too expensive, or the credit card company charging high-interest rates; the fact is, if you take action and prepare a budget, you will get on the path to improving your personal finances.

Remember the three main goals when preparing a budget are to,

  1. Manage your monthly expenses so that you don’t overspend;
  2. Set up an emergency fund;
  3. Pay off consumer debt;
  4. Save 10% – 20% of your monthly earnings.

Whether you want to buy a house, a car, or pay off debt, or simply improve your financial situation, a budget can pave the roadmap that will get there. Happy budgeting!

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