Budgeting 101

by Katy on May 16, 2016 · 17 comments

The following article first appeared over at ClarkHoward.com.

To most people, the word “budget” is a negative word. A barrier against the enjoyable things in life. Ask a person to use it in a sentence and it’s likely to sound something like this:

“Sorry I can’t go see the latest movie with you, it’s not in the budget.”

Cue tragically sad violin music.

To me, the word is positive. Why? Because a written and detailed budget allows for a personal finance plan that allows for both bills and entertainment. Let’s try “budget” in a sentence again.

“I’d love to go see that movie with you. I’ve budgeted $100 for entertainment this month. Please let it be my treat!”

Better, yes?

Unfortunately, many of us freeze at the thought of putting together an actual budget. How much are my actual bills? What about irregular income? What if I learn something bad about my finances through budgeting? Take a deep breath, people. With the advent of online programs, budgeting has never been easier. No longer is it necessary to fill pages with chicken scratch or have an accounting degree to put together a working and functional budget.

With this step-by-step budgeting guide, you’ll be on top of your finances in no time at all!

Step one

Ask yourself why? Unless you have a concrete reason why you’re putting together a budget, you’re doomed to fail. Are you working towards paying off your student loans, saving towards a house or knocking out your credit cards? Knowing the why will make the how exponentially easier. Figuring out your big picture goals will put any sacrifice into perspective.

Step two

Collaborate with your spouse if you’re married. No budget has a chance of success if all family members aren’t on board. Discuss what’s important to each of you and really listen to one another’s perspective. A functional budget incorporates each person’s priorities. Again, talk about your big picture goals.

Step three

Choose a budgeting system. No need to invent the wheel here, as user friendly budgeting programs abound. Whether you choose Every Dollar, You Need a Budget (YNAB), Mint, an Excel spreadsheet or even a simple pad of paper, pick one method and then stick to it. One chosen system will work 100% better than choosing nothing at all.

Step four

Gather up your bills, income source records and miscellaneous expenses. This might seem like a pain in the tuchus, but you only have to do this the first month. It’s important to include every single expense and expenditure. This might seem finicky, but it’s the key to a successful budget. Unsure where to start? Look through your credit card bills, bank account statements and that teetering stack of bills in your dining room. The first month’s budget is likely to be less than perfect, but that’s okay as it’s inevitable that you’ll forget certain expenses. Add forgotten categories to the budget as the month goes on to complete a realistic financial picture.

This step might be on the uncomfortable side of horrifying, but that’s okay. You can’t get past the boogie man until you face your fears. Knowing how much you earn, spend and owe is the point of a budget and a necessary step. Knowledge is key.

Step five

Be honest with yourself. You might be tempted to only put $300 into your food budget to balance the budget, but unless you have a time machine back to 1955, you’re only setting yourself up for failure.

Step six

Be willing to sacrifice. In order to move ahead with those big picture goals, you’ll probably need to make a few sacrifices. Cable-TV, frequent restaurant meals and extravagant gift giving may need to take a back seat to important goals such as debt reduction and retirement planning.

Step seven

Make a distinct budget for each month. Yes, your rent or mortgage should be the same each month, but there will be differing expenses and income that need to be accounted for. For example, heat and air conditioning, birthdays, garage sale income, school expenses, overtime, vacations and work bonuses. Most of this can be anticipated.

Step eight

Keep at it. Keeping a budget is a life long habit that needs to continue throughout your adulthood. Budgeting isn’t just for people in dire financial straits, and is an important tool for anyone looking to achieve financial success. Be deliberate with your money. Be smart with your finances. Stay smart.


I’m a personal finance writer, but embarrassingly didn’t started budgeting until last year. Why? I thought my husband and I had no problem with impulsive spending, so I figured it was a lot of work for minimal gain. Boy, was I was wrong! What my husband and I have gained from the experience has been incredibly valuable. No longer are we anxiously wondering which bills have been paid and which haven’t. We now know at a glance exactly what we need to pay each month and what’s already been paid. So easy. As a result, We’re now able to sock away thousands of dollars each month for our sons’ college expenses with minimal sacrifice.

Where was our money going before we started budgeting?!

I’m not entirely sure, but what I can be sure of is that tracking and planning our money has freed up our finances and given us tremendous peace of mind. Budgeting took away the financial worry that impelled me to check our credit union balance multiple times per day.

Budgeting gave us financial freedom. And in my book, that’s a positive thing.

Katy Wolk-Stanley

“Use it up, wear it out, make it do or do without.”

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{ 17 comments… read them below or add one }

Rebecca May 16, 2016 at 10:31 am

Nice step-by-step explanation of the process!

I have to say, though, my fiance and I spend about $300/month on groceries and I don’t feel like we’re setting ourselves up for failure… maybe for your readers who have kids it wouldn’t be possible, but for two of us it definitely is.


Katy May 16, 2016 at 10:41 am

I guess I was thinking of a family with kids.


Reese May 16, 2016 at 11:19 am

I have a $300 budget for groceries, too. We went a little over this month due to a graduation party with 30 guests. But otherwise, we do pretty well! (It helps to meal plan. at least for us.)


Madeline May 16, 2016 at 11:52 am

Actually,I budget $400 for 2 of us at the grocery,since eating really well at home keeps us out of restaurants! We enjoy good fresh foods and I like to bake.Some months I stay under budget but I don’t skimp too much.That said, I would not spend $2.50 for white peaces today at the grocery. The yellow ones were 88 cents a pound! And cherries were on sale, so, buying in season is healthy AND budget-wise. I did buy organic greens, we eat a LOT of salad.

We spend very little on entertainment since there are so many FREE things to do in our town, and we are mostly retired so we have time to check out the deals.

Can I ask which system you use to budget? Do you do online like MINT or paper and pen?


PaperCraneFarm May 16, 2016 at 4:38 pm

I use a google doc spreadsheet that I built because I can access it from any computer anywhere. I wanted the ability to project what would happen on a tax year basis and to track what has happened (essentially budgeted vs. actuals for income and expenses). I’m probably not the norm, though.


Chris May 16, 2016 at 3:19 pm

I do not use the Every Dollar app but use the idea that once a budget is in place for the current 2 week period, everything else gets transferred to the savings account. I can’t believe how much money I have had been able to set aside!! And once it is in savings, I rarely transfer it out.

Think of the $$$$ I would have saved over the years if I had taken this approach before?!?! But not one to beat myself up over the past (OK it’s a struggle but I try my best), I am so happy I found this plan now rather than days/months/years from now!


PaperCraneFarm May 16, 2016 at 4:33 pm

But think about how much you’ll save for starting when you did! At least you did it then, not ten years ago! Your future you will thank you for starting when you did.


PaperCraneFarm May 16, 2016 at 4:31 pm

We take a slightly different approach of trying to keep our spending as low as possible and our income as high as possible. We track our spending and our income to the penny so that:
1. We know how much we can save and/or use to pay down debt. We have more uses for dollars than dollars at this point!
2. We get the constant competition of seeing the expenses lower than last year and our income higher than last year.
3. We also see the immediate impacts of proactively doing something like reducing spending by using a coupon or eating down the pantry or working on a side gig.
4. We can project future years likely expenses.


Canadian Girl May 16, 2016 at 4:46 pm

Fantastic read Katy!! Clark Howard and all of his readers are very lucky to have you writing for them your sense of humor and honesty rock!


Frugal Fingers May 16, 2016 at 8:04 pm

I like the cut of your jib, thanks for the inspiration !


Diane May 17, 2016 at 4:02 am

My budget is very simple. I have a certain amount coming in, I have a certain amount of bills and rent to cover. That is it! Nothing more or further. Every month for years and I am am finally seeing the bills become fewer as I pay off debt.


JD May 17, 2016 at 6:33 am

My budget attempts have failed because: 1. In the past, we had more bills than money, so I was constantly trying to work magic with negative numbers, which never succeeded, no surprise there. 2. When I finally drew up a budget on an income that had enough to cover the bills plus some savings, my husband refused to look at it, listen to what we had to pay, or adhere to it. He still is that way. He has many good qualities, but money management is not one of them. He doesn’t want to think or hear about it. He actually said, more than once, “We need spending money in our pockets, first, then pay the bills.” Money management for us is mainly me taking care of all the bills, and automatically having savings sweeps from our account on payday so he can’t get to the money before I can get it to savings. I would rather be able to use a budget in cooperation WITH him. Maybe one day we can get past Step Two of Katy’s excellent article…..


Lori May 17, 2016 at 9:12 am

Well number one hit me in the face like a brick! We need a reason. We need a reason and we need to put it in writing! We do very well at living below our means and saving as much of our income as we can. But, we can do better and we need to put pen to paper and create a “real” budget and in bright bold colors at the top of the page it needs to say “PAY OFF THE MORTGAGE ASAP” We have that goal, but we need to get serious about it.
Thank you Katy for such a simple 1-2-3 yet brilliant post!


Katy May 17, 2016 at 9:34 am

Thank you so much for your kind words!


K D May 17, 2016 at 9:35 am

An excellent step-by-step process. So well written, thank you. I’m sure I will share with several people.


Mrs. Picky Pincher May 19, 2016 at 5:04 am

I think a lot of people are turned off by budgets, but it’s really the best way to manage your money if you have debts or expenses of any kind (and pretty much everyone does). As humans we need to learn more restraint, especially in a “gimme gimme” kind of world. Budgets give us that restraint, and let us see the consequences of our choices. I’m weird and think budgets are super fun, so do whatever it takes to make monitoring and saving money fun for you. 🙂


Adam May 20, 2016 at 8:52 am

My wife found a great software to money management- Geltbox money – its Simple to use, quick and intuitive.

automatic download from any website (banks,credit cards) , high level of security (Your financial data is securely stored and encrypted only in your personal computer)


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