Fool Proof Guide To (Finally) Making A Budget

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Did you know that no matter how much money you make, you need a budget? In today’s article, we’ll cover why budgets are essential and how you can get started on creating your own financial roadmap.

Why Do You Need A Budget?

There is a saying that I really love. It goes, “You can’t EXPECT what you don’t INSPECT.”

Many people live their lives hoping to make more money; hoping to have enough money in retirement; hoping to have enough money to take that vacation or buy those holiday presents for loved ones . . . but they don’t take the time to plan, save, or follow a budget to make sure that their hopes become reality.

You can’t EXPECT the money to be there when you need it, if you never INSPECT where your money is before it’s gone.

According to a report by the National Foundation for Credit Counseling (NFCC), as of 2020, over half (53%) of all U.S. adults don’t have a budget. This means that more than half of the population is missing out on the financial benefits that come with careful financial planning.

Furthermore, the same report highlights that 27% of Americans admit to not paying their bills on time, leading to late fees and damaged credit scores. This emphasizes the need for a structured budget to help individuals manage their finances effectively and avoid the stress and financial repercussions of late payments.

But it’s not just about avoiding late fees; it’s also about building a secure financial future. Many families in the United States live paycheck to paycheck, and a large percentage have insufficient savings to cover unexpected expenses. In fact, a survey by Bankrate found that as of 2020, only 41% of Americans could cover an unexpected expense of $1,000 or more without going into debt.

Having a budget is crucial because it assigns a purpose to every penny you earn. Even if you have extra money left over each month, every dollar should have a designated role to play in designing your ideal financial life.

Whether that dollar goes into savings, investments, or charitable donations, every dollar needs a job. You need to know where to allocate it. For most of us, we don’t have a surplus of money lying around, which is why it is even more important that we track our income and expenses with a budget.

When we know where our money is going, we can identify areas where we may be able to cut back or find more money to increase our savings, grow our emergency fund, and invest for retirement to build a secure financial foundation.

During my time as a financial advisor, and even now as a law school graduate student, I have helped many families and individuals start their financial journey by creating a budget. I would like to go through a few simple steps that you can follow to get your budget started today.

However, before we get into the nitty-gritty of creating a budget, let’s explore the different types of budgets that are out there and which one is the best fit for you . . .

Types of Budgets: Finding the Right Fit

It’s important to understand that budgets come in various shapes and sizes. Each type of budget serves a specific purpose, and choosing the right one depends on your financial goals, lifestyle, and preferences. Let’s explore some common budgeting methods:

1. Traditional

This is the most common budgeting method, where you allocate a specific amount of money to each spending category, such as housing, groceries, entertainment, and savings. It provides a clear picture of your income and expenses.

This type of budget is usually best for people who spend pretty consistently from month to month and also have consistent income that does not fluctuate.

If you do not consider yourself a detail-oriented person or it would be difficult for you to update your budget tracker weekly, this type of budget will not be ideal for you.

2. Zero-Based Budget

With this budget, every dollar you earn has a designated purpose, down to the last cent. You “zero out” your budget by ensuring your income minus expenses equals zero. This method encourages careful allocation and leaves no room for unaccounted spending.

This budget can be particularly helpful for people who do not have a surplus of funds left over at the end of the month and are trying to find ways to make their money stretch as far as possible.

I also recommend this budget type for people who are brand new to budgeting. I think it is important for people to spend some time being fully intentional with how they allocate every penny of their income before branching out to other budget options.

This type of budget may not be ideal for you if you are self-employed or your income amount fluctuates.

3. Envelope System

If you’re a tactile person who prefers handling cash, the envelope system might work for you. You divide your cash into envelopes labeled for different spending categories. Once an envelope is empty, you can’t spend more in that category until the next budgeting period.

I do not recommend this budget for people who do not keep receipts or quickly forget about expenses that were paid for in cash. This system is also not ideal because you miss out on the opportunity to have your money in a high-yield savings account earning interest for you, not to mention the heightened risk of your money being stolen with no bank protection safe-guard.

4. 50/30/20 Budget

This approach involves allocating 50% of your income to needs (essential expenses like housing, utilities, and essential groceries), 30% to wants (non-essential spending like dining out or entertainment), and 20% to savings and debt repayment. It offers a balanced way to manage finances.

This budget works well if your expenses naturally fall close to these percentages. If your housing alone is 50% of your income, for example, then this will not be a good budget because your proportions will be completely skewed.

However, if you have a fluctuating income, a system like this may be good since you are working in percentages instead of fixed numbers. This way, you can easily allocate your funds regardless of the total amount.

5. Reverse Budget

A reverse budget focuses on savings and debt repayment first. You allocate a fixed percentage of your income to savings and debt reduction before considering other expenses. This method prioritizes financial goals and encourages disciplined saving.

This budgeting method may work for you if you have some amount of discretionary income.

I am all for the idea of prioritizing savings as if it were a required bill, but, if you are living paycheck to paycheck, you likely will not be able to allocate a percentage of your income to savings before considering other expenses.

6. Bi-Weekly Budget

If you’re paid bi-weekly, this budget aligns with your income schedule. It involves breaking down monthly expenses into bi-weekly allocations to ensure bills are covered with each paycheck.

This budgeting method is especially helpful if your bill due dates are disbursed throughout the month.

7. ADHD-Friendly Budget: Set It and Forget It

If you have ADHD, are Neurodivergent, or generally struggle with impulse spending, going over budget, forgetting due dates and incurring late fees, etc, then this budget method is for you.

The general concept is not anything revolutionary, but this is a method that I have put together (and named) as a fellow ADHDer who was looking for a simpler way. There IS a little setup on the front end, but it will be worth it when you are flying free after that.

The Set It and Forget It budget involves having the following accounts ready to go:

  • two checking accounts
  • at least one high-yield savings account (emergency fund and sinking funds), and
  • at least one retirement account (employer-sponsored or an IRA)

You also need to have at least one month of expenses saved so that you are not operating paycheck to paycheck. I teach you how to get out of the paycheck-to-paycheck cycle in this video.

The last thing you will want to do is get all of your bill due dates moved to the beginning of the month (I recommend between the 5th and 10th to accommodate for weekends and holidays) and put as many, if not all, of those bills on auto bill pay. This includes putting your retirement investing and savings on auto draft (ideally through your employer so you never see it).

Now, let’s take a look at what you will do with your checking accounts…

A. Checking Account 1: Necessary Expenses

The amount of your budget that is needed to pay for the auto bill pay and savings auto draft payments (if the savings cannot be drafted by your employer before you receive your check) will go into one checking account.

Remember that one month of expenses you already have saved? You will use a portion of that money (which should be in your high-yield savings account) and transfer it to the necessary expenses checking account on the 1st of each month (see why your bill due dates shouldn’t be earlier than the 5th??).

If you are not able to create autopay for every bill, you will still include the money needed to pay those bills in this checking account. Essentially, this checking account will hold all of the money in your budget that is allocated to bills, savings, debt, and expenses that are absolutely necessary (consider keeping your grocery money in this account).

Since all of your bill due dates will be around the same time at the beginning of the month, you won’t ever have to worry about missing a payment or not having enough money left to make a payment, because they will all be paid for before you start spending for the month.

Even if you still have to pay a bill or two manually, now you get to sit down one time and take care of all of the bills at once. No more setting multiple calendar dates and alarms and stressing to keep track of a bunch of payments scattered throughout the month.

Schedule your grocery shopping for after the last bill is paid, so you know exactly what is left for food, and you don’t accidentally spend your light bill on seafood night.

B. Checking Account 2: Everything Else

The rest of your monthly budget amount will be transferred on the 1st from your high-yield savings account to your second checking account. This is the FUN account because you get to spend from it with reckless abandon!

With all of your necessary expenses and savings accounted for, the only thing you have to look out for in this account is making sure you don’t overdraft. Other than that, go to brunch, get your hair did, and enjoy that movie!

As you can see, while there may be some upfront grunt work with the Set It and Forget It method, the positives FAR outweigh the negatives when you now have the peace of mind in knowing that current AND future you are taken care of.

Each of these budgeting methods has its advantages and may suit different financial situations. It’s essential to choose the one that aligns best with your financial objectives and lifestyle.

Now that you are aware of the different budgeting methods, let’s take some action and create our budget!

In this step-by-step guide, I will show you how to evaluate all of your expenses, and you can choose which budget type to incorporate from there.

Sound good? Let’s get started!

Making a Budget: Step-By-Step

1. Gather Spending Records

The first step is to compile records of your past purchases. I recommend at least three months’ worth of data to obtain an average overview of your spending habits throughout the year. You can select the most appropriate three months based on your spending patterns – whether that’s the last three months or a combination of different seasons.

To collect this data, print out your checking and savings account statements and any credit card statements. If you primarily use cash and lack records of your spending, start tracking your expenses for the next 30 days. Carry a notepad or use your phone’s note app to jot down every expense, including the item and its cost.

2. Categorize Your Expenses

Next, go through your spending records line by line and categorize each expense. While you can customize your budget categories to suit your preferences, here’s an example of how to categorize your expenses:

  • income
  • savings
  • fixed expenses (the amount of the bill never changes)
  • semi-fixed expenses (the amount fluctuates, but is fairly predictable – utilities)
  • variable expenses (necessary expenses that fluctuate – food, gas, medical, etc)
  • surplus variable expenses (expenses you’re willing to cut back on if needed)

If you enjoy color-coding, grab your colored highlighters and label each line item on your records. Alternatively, if you haven’t printed your documents, manually enter the information into an Excel spreadsheet or on a piece of paper.

Here’s an example where I’ve handwritten the budget categories and recorded the expenses for September.

You can see that fixed and semi-fixed expenses typically have one expense per month, while variable and surplus variable expenses involve multiple smaller expenses.

For items like groceries or gas with multiple expenses in a month, tally the total next to the line item.

3. Calculate Averages

After categorizing your expenses for each of the three months, determine the average amount spent in each category. If these averages fall at or below your monthly income, you can use these numbers to create your budget.

However, if you believe you can cut back in certain areas, now that you have a better understanding of your spending, adjust the numbers to align with your capabilities. This is especially crucial if you currently don’t have any savings and need to reallocate funds to start building your financial safety net.

As you can see in the image above, the final budget amount was able to come in over $300 under the average amount spent after this individual chose to cut their spending in some of the categories.

Creating a budget that’s lower than your typical income enables you to allocate any surplus money intentionally.

The new budget allows them to allocate any excess funds to specific financial goals. This approach ensures that every dollar has a purpose and prevents overspending.

4. Debt Payoff

Dealing with debt is a critical aspect of your budget. You can choose to focus on paying off debts with the highest interest rates or those with the lowest balances. Regardless of your strategy, the process involves directing extra funds towards one debt until it’s paid off, then moving those funds to the next debt. If you’d like to learn more about debt payoff strategies, you can watch my video about it here.

For example, an individual may prioritize paying off “credit card 1” first while making minimum payments on other debts. Once “credit card 1” is paid off, the total amount previously allocated to it is redirected towards another debt, accelerating the debt payoff process.


Having a budget is a fundamental step towards achieving your financial goals. If you haven’t already created one, I hope this walkthrough has motivated you to tackle your own budget this weekend. Remember, creating a budget isn’t complicated; it merely requires some time, patience, and a plan. Set aside time this weekend to create your budget and take control of your financial future. If you have any questions or additional tips, feel free to share them in the comments below.

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