How to Create an Effective, Realistic Budget Based on Your Individual Goals [+ FREE PRINTABLE]

 Get your FREE budget planner! Tracking your cash flow and spending habits will help you stop living paycheck to paycheck, increase your savings, reduce your debt and ultimately achieve financial independence (i.e. sticking it to the man anytime you want because you live for you and your family, and not for a paycheck). 

Taylor Swift has a budget.

Stay with me.

Budgets get a bad rap.

You might even say they have a bigggg reputation, biggggggg reputation ahhhhh. OK done with that.

The very word "budget" is often used as an adjective to describe something as inexpensive or "less than".

Budget foods. Budget clothes. Budget buys.

But the reality of it is, we are all shopping on a budget — some of us just have larger budgets than others. This even applies to people who have an "unlimited budget." See? Saying you have an unlimited budget is still admitting there is a budget that exists.

It's a technicality, but the point of this rant is that it annoys me that budgets have this close association with being cheap. But that's just not always what they are. 

(Although, I guess the alternative would be to call it "low-budget grocery buys", or "tight-budget clothes", and that is not a good marketing tactic. Saving money is attractive to a buyer. Being called out for not having money is not attractive to a buyer. #advertising)

This is how I know Taylor Swift has a budget. Even if you're an iconic songwriter and the voice of a generation, you need to know where your money goes. That's just being a good businesswoman. And whether or not you dig her music, I think we can all agree that Taylor Swift is a savvy businesswoman. Her budget is just a lot bigger than ours. Like, a LOT. 

 ^ me when I think about how rich TS is  //  via

^ me when I think about how rich TS is  // via

HERE'S THE TRUTH ABOUT HAVING A BUDGET

I don't like that talking about your budget is awkward, even among close friends. Or that it's uncomfortable to mention the reason you're not going on that group ski trip is because it's not really in the budget right now (TOO REAL). Or that budgets = restrictive and cheap for many people.

Here's the truth of it: Having a budget doesn't chain you down. It offers you freedom with, and control over, YOUR money.

In the famous (at least, famous in personal finance blogging world) words of Dave Ramsey, "A budget is telling your money where to go, instead of wondering where it went." And actually Dave Ramsey is quoting John Maxwell, but it's all true just the same.

 A budget is telling your money where to go, instead of wondering where it went. — John Maxwell | Want to learn how to take control of your finances and save money? Get the FREE MFM Beautiful Budget Sheet!  | MissFunctionalMoney.com

Many of my friends have a mental budget system. For example, they see their paycheck hit every two weeks and know generally what they spend on average for groceries, gym memberships and shopping. They just kind of keep a mental note of "Oh, I usually only spend $150 on groceries, and so I can buy this new dress and still make rent." Other friends I know don't really have a budget outlined, but if they want to make a purchase, they just check their bank's mobile checking app. If there's enough money in there, boom, purchase completed. Some of my friends aren't even that oblivious, and yet they still don't track their money each month.

WHY DO YOU NEED A BUDGET?

Tracking your cash flow and spending habits will help you stop living paycheck to paycheck, increase your savings, reduce your debt and ultimately achieve financial independence (i.e. sticking it to the man anytime you want because you live for you and your family, and not for a paycheck).

Full disclosure: I created a practical, pretty budget planner that I think you should consider downloading. It's not the most sophisticated, it doesn't do any calculating for you and it doesn't have a line for every single penny that you spend (more on why a bit later).

But here's what it DOES do:

  • Provides a clean, aesthetically pleasing way to see your finances laid out before you, where you can't run or hide from them

  • Offers a simple, easy-to-use and effective money-tracking method — that is, if you actually use it

  • Spells out your goals clearly, helping you achieve your deepest hopes and dreams. And also your average-but-important goals, like learning how to keep basil alive for more than a week. (Just me? OK. Cool.)

  • Makes you smile daily, because it's just so darn pretty.

I hired a highly sought-after graphic designer to help beautify this budget planner, because I am very busy and important. (OK, fine, it was my sister so I had some pull — it's my blog, I can say what I want.)

If you are just here for the freebie, that's fine! Won't bog you down. You can download it below:

But to get the most out of the whole process, I encourage you to read the rest of the post. Read on so that you may thoughtfully, mindfully approach your budget, or if only to stroke my ego.

Now, I know that many of my readers* are 1.) family and thereby obligated to read this; 2.) already interested in personal finance and seek out money management information on the internet; 3.) already personal finance bloggers themselves, and budgeting 101 is like grammar school talk.

Fit any one of the descriptions above? You need the MissFunctional Money Beautiful Budget Planner!

I hope this post reaches those who maybe are doing their best, plugging along at their jobs, but nobody ever really told them that they should spell out their expenses in order to get a grip on paying them. If you have never had a budget, buckle up, baby. If you are already a Steady Eddie budgeter ... idk, maybe you'll enjoy the pretty colors.

And if you've completely nailed your finances, are not eager to learn anything new and have no interest talking about what made you successful then, well, why are you here, honey?

Let me say it one more time for the people in the back: Having a budget does not mean you're poor, or that you have money problems. It means you have taken control of your money and your life, and not the other way around.

HOW TO CREATE A REALISTIC BUDGET

Much like your preference on avocado toast toppings, how you budget should be a combination of others' wise recommendations and your unique tastes, experiences and needs. (Sprouts with pistachio and sriracha? A match made in heaven! Salmon and almond butter? Probably not a great idea but wow girl, do you! Gotta learn somehow!)

TL;DR: Your budget is unique to you.**

It's up to you how you want to approach your budget.

Some people use this approach called 50/20/30.

WHAT IS A 50/20/30 BUDGET?

Before I dive into this one, note that I don't LOVE this approach or agree with it for my needs. Essentially, with a 50/20/30 budget, 50% of your money is set aside for needs (rent, groceries, toilet paper), 20% for savings or debt repayment (one OR the other?? Here's where they lose me.), and 30% is allocated for discretionary income (laser tag, tickets to see Frozen On Ice, organic facials, extra savings).

Benefits of 50/20/30 budget:

  • Simplicity.

Beginning a budget can be overwhelming for some, and that incompetent, omg-where-do-I-begin feeling can be a huge barrier for good people who just don't have the discipline to create and stick to a budget. The 50/20/30 budget is better than nothing if you've never budgeted before and need some ballpark figures to work with.

Downside of the 50/20/30 budget

  • It's unintentional and ambiguous.

  • Saving is nowhere near the forefront of the financial strategy.

  • 30% of your income is a hell of a lot of money for discretionary items. For example, 30% of a $2,500 monthly paycheck is $750. Every single month?! Are you flying to Bali every month? That's insane to me. Even if your priorities are not to pay off debt quickly, this seems like an extremely high allowance to just have for kicks and giggles with no real purpose or premeditated reasons for the spending. If you don't know what to do with it, give it to me. Or invest it. Whatever. 

I'd venture so far as to say that the 50/20/30 budget may be detrimental to people who don't know what they're doing. What if, before I learned about this method, I only spent 10% of my budget on "fun" and now I feel like the rest of the world spends AT LEAST twice that amount to live life. It's an arbitrary number. I think the original ideator probably saw this as a loose catch-all approach that people could tailor to themselves, but I fear people take this to heart without analyzing personal needs.

WHAT IS A ZERO-BASED BUDGET?

Speaking of Dave Ramsey, he's the #1 fan of zero-based budgets***, a financial approach that assigns all income dollars a "job" (e.g. this dollar goes to rent, this one goes to car maintenance, this one goes to savings).

I'm on board with this method because when you assign all of your money to a certain duty, there is little room for error, splurges or leftover waste.

I've found in my own life and financial planning that having broad, but accurate, categories is the best way for me to stay on track. For example, some people like to track grocery spending down to the penny. That's works for them. If I don't give myself a little bit of wiggle room, I'm not going to stick to it. That's just my reality. Tracking every penny becomes too much of a burden, and the whole exercise becomes counterproductive for me because I just ... quit. So while I "give every dollar a job," I don't lose sleep if I spend $79 instead of $74 on electricity. That's why I wanted to create my own beautiful budget planner to accommodate the way my brain works.

OH, A FINANCIAL BLOGGER WITH A FREE BUDGET PLANNER? HOW ORIGINAL.

If you've spent any time in the personal finance blogging community, you've probably seen a million posts on "why you need a budget" or "how to budget even if you aren't a budgeter." I'm not trying to produce unoriginal content, and I am not just doing this because I feel like it's some requisite to being a personal finance blogger. I think my approach differs slightly from some of the more popular printables out there, and I'll tell you why:

  • I don't stick to a dollar for dollar budget. I have tried. Multiple times. THAT is when I start to feel like the slimy hands of Time Sucker tighten his grip around my neck and I spend more time updating my line items each week than living my life and doing important things like folding my laundry, reading or contemplating the magic that is Paul Rudd's anti-aging cream. Using broad categories allows me to feel like I am still in control of the budget without it being some looming, horrible chore.

  • Goals are included in the same place, making it easy to remember WHY you are doing that budget in the first place.

  • It includes rare, long-forgotten quotes from some of our world's finest thinkers.

  Someone get me the number of this man's facialist. Inarguable proof  via

 Someone get me the number of this man's facialist. Inarguable proof via

TIPS FOR GETTING STARTED ON YOUR BUDGET

  • Be realistic. There's no point in your budget looking like an aspirational goal when it's supposed to be a helpful tool. Otherwise it's just a peacock: Lovely to look at, completely impractical and won't survive the apocalypse.

  • Be honest. If you have a Target shopping problem, don't bury your head in the sand. Write it down. And also, if you're married, this tip is CRUCIALLY important. Open, honest dialogue about money is a game changer. As a married lady of nearly four whole months, some consider me an expert.

  • Be open minded and willing to adjust. That's it.

 

HOW TO CREATE YOUR BUDGET STEP-BY-STEP

STEP 1: Tally up your incomes.

Track what's flowing in, including:

  • Post-tax income

  • Consistent side hustle income (put the minimum consistent amount)

*Side note: I don't have a post yet on how to budget if you have an irregular income, but I found Club Thrifty's article on creating a Boom And Bust Account to be very informative and full of good ideas.

 

STEP 2: Track your expenses.

Track how much you shell out each month: 

  • Housing costs, like rent or mortgage, insurance

  • Utilities, like water and electric

  • Internet, Netflix/Cable, etc.

  • Current savings*

  • Current outstanding debts

  • Food, including groceries and restaurants

  • Fun fund, and don't skip this! Including a line for fun is important for keeping your budget realistic. Not allowing any room for a last-minute shoe find or unexpected gas tank for a road trip is silly and unrealistic.

  • *Note: If you contribute to a pre-tax savings or investment account, like a 401(k) or IRA, you don't need to include that in your monthly budget. Only include your take-home pay. If you do contribute to a post-tax retirement account, put it as a line item in "Savings."

Related read: How much should I contribute to my 401(k)?

Remember, your savings are counted as an "expense" line item, so by the end of it all, your total should be zero.

Income - expenses = 0

 

STEP 3: Determine your ideal emergency fund. 

  • Now that your expenses are listed, think through how much you need in an emergency savings account. Like an airplane vomit bag, this is one of those things you hope you don't have to use, but sure are glad to have when you need it.

  • Your exact number depends on a lot of things. like how much your rent is, if you have tiny humans counting on you for food, etc. "Experts" say your emergency fund should cover the cost of living and expenses for 3-6 months. (That's a pretty wide range!)

  • NerdWallet's Emergency Fund Calculator is a good place to get a rough number to work with, and then you can personalize what's best for you from there.

HOT TIP #1: For yearly/twice-yearly expenses (haircuts, major car work, etc.) I don't love putting them on my monthly expense sheet because it's too ambiguous and I lose track of where it goes. I prefer to put more into savings, and just know that I'll have to withdraw the exact amount I need. That's just what realistically works for me. I don't necessarily recommend this to everyone; if you have a problem with saving and there is a possibility that the money for an annual expense won't be there when you need it, put aside a set amount each month.

HOT TIP #2: If you prefer the clear-cut discipline of having to put money toward random-but-expected specific expenses like the one listed above, consider opening a free checking account for each major category. For example, have one checking account for "Wedding Fund," one for "Christmas Gifts," one for "Vacation" and so on. Bear in mind that many of these types of checking accounts have minimum balance requirements — watch out for unexpected bank fees!

HOT TIP #3: Don't go buckwild with the above, because a checking account won't grow itself. Even a money market account or savings account will earn more interest than a checking account, though they still keep your funds liquid. So if you do like to keep very specific, organized funds, keep it to only what you will need.

Related read: 3 things I'm eliminating to save my budget

HERE'S WHAT I DON'T RECOMMEND:

Many bloggers/advice-givers/armchair experts advise that you immediately look for ways to cut your spending. Substitute meat and potatoes for beans and rice. Cut your grocery bill in half. Reduce clothes shopping by 70%. I don't recommend that. At least, not right off the bat.

Much like Pete Davidson and Ariana Grande's relationship, dramatically changing your habits in one fell swoop is not going to last.

The first month, you just analyze. Learn your real habits. Then, adjust accordingly. During months two and three, you can see your weak spots in black and white (or green and white, in my case), and slowly shave off dollars spent here and there. Do you really need both Hulu AND Netflix? Can you get creative with the clothes you already have? Can you find ways to save money on groceries?

Cutting down on consistent monthly costs and fees is one of the best ways to save money over the long haul. Identify where you're flushing money away, and pivot.

  via

Boom baby, you have a budget. You're Warren Buffet now, right? Well, maybe if you stick to your budget. That's the hard part.

That said, you control the budget. The budget does not control you. YOU decide what your priorities are. For some, a manicure is a priority, because looking polished is part of their job. For others, paying extra for organic produce is a priority. And for others, eliminating debt at (literally) all costs is the highest priority. As long as you are mindfully, thoughtfully, carefully making decisions, you're doing alright.

YOU decide what you want. Not me. Not Mr. Money Mustache. Not your mother.

Because you're the one who has to live with it.

So what do you want?

  via

If you made it this far with all the budgeting and math-ing and thinking, go pour yourself a glass of wine and settle in for the fun part.

HERE'S THE FUN PART:

There's no point in taking all that time to painstakingly create a working budget if you don't particularly care which direction you head or what your life looks like. Identifying and creating your goals is a crucial step toward success in any category — fitness, finance, family, food, fannypacks (was on an "f" roll, sorry), and on the list goes.

About one billion people have said this before me, but setting a goal gives the rest of your life context and purpose, especially if the goal is SMART.

  • Specific (Say exactly what you're going to do, so that you can cross it off the list with vigorous satisfaction.)

  • Measurable ("Be a nicer person" isn't measurable; "Do one kind thing for a person each day" is.)

  • Attainable (Is the goal ultimately achievable in real life, not in your fantasy dream life? Note: Creating Saturn's first all-girl screamo band is not attainable. Because nobody listens to screamo. ;)

  • Relevant (If the goal is not aligned with your life plan, passions, work or interests, how likely are you to make it a priority?)

  • Timely (Set a due date. Without one, how will you have any motivation?)

Now, it's time to set some actual goals! TAKE YOUR TIME!

Use this exercise as an excuse to reflect on your choices and wonder what your life could look like if you had your way.

Kind of like your budget, you should work backwards with your goal sheet. Start with the big dream, the reach-for-the-stars goal. It might be owning your own business. It might be running a 5K. It might be earning financial independence, starting a blog or opening a champagne bar/bookstore (HELLO!!!!!).

Write it down.

Now, back up a baby step. What do you have to do first, in order to get there? And what do you have to do before that? Create bite-sized nuggets that you can happily munch off every time you get one little step closer.

And, much like your budget, your goals can — and should — be adjusted as you go on. Adapt to change, but stay true to your values. You'll be just fine.

The MissFunctional Money Beautiful Budget Planner breaks down goals into 4 major segments: 20 years, 10 years, 5 years and within 1 year. That way, you have long-term goals and short-term goals that can build on each other.

Are you eager yet? Have I teased it enough?! GET IT NOW!

Get ready to tackle your budget and take control of your life.  

You can print this out or edit it within your computer, because my fancy designer sister made it fancy. If you're just getting started with budgeting, I strongly suggest printing this out.

That's right. Unfasten your fingers from the phone you're now clutching dangerously close to your heart and embrace the idea of ink. There's something about a pen and paper that makes it all a little bit more real — like there are real consequences, and real skin in the game. There are many great apps and online sheets that can make budgeting a breeze, but I swear by pen and paper for the first leg of the journey.

After you print it out, go back through this post and follow along step by step until you have a budget so pretty and lovely, you'll hang it on the fridge like the star adult you are.  

Go forth and prosper, ya finance nerd.

MFMSignature

P.S. I'm curious — what budget system do you currently use, if any? Does it work? Are you like me and can't schedule every single penny? Let me know in the comments please!

 

 

*That's what we call subtle humor. Because "many of my readers" are not very many yet at all. Getting there!

**Because I know my dear, sweet, angel of a mother will ask: TL;DR is internet-speak for "too long; didn't read" —a short summation of the entire message.

***I've also seen this called "zero-sum budgets" and "zero-dollar budgets." Potayto potahto.

 Get your FREE budget planner! Tracking your cash flow and spending habits will help you stop living paycheck to paycheck, increase your savings, reduce your debt and ultimately achieve financial independence.