Build a Basic Budget in 15 Minutes

This blog will help you create a quick and dirty budget, or as my husband calls it -- the TLAR method (that looks about right). If you build a budget based on your base salary, any extra money (retirement pay, special duty pay, tax free, bonuses) can be used for your goals and other priorities. As you go through the steps below, initially try to cover your living, obligated and lifestyle expenses using your base pay/salary only. That will allow you to use any extra pay to help you create your next meaningful life.

Build a Basic Budget Quickly

Whether you run a Fortune 500 company or a family, budgeting is the foundation of your financial success. A budget helps you understand how you spend your money and place your high priorities at the top of your spending list.

BUDGETING FOR BEGINNERS

Even a very basic budget can provide incredible value for consumers. While more complex budgets offer more control over your money, having a simple budget will still provide insight into how you can manage your money to achieve your goals. Unfortunately, most families don’t have or follow a budget.

WHY MOST DON’T BUDGET

During my experience as a financial coach/counselor, I have noticed that there are two main reasons people don’t budget.

First, they don’t want to feel forced to sacrifice and second, budgeting takes too much time. If you fall into either of these categories, this article will solve those problems, making it easy to maintain a basic budget.

MYTH: BUDGETING FORCES YOU TO SACRIFICE

Many don’t budget because they don’t want to sacrifice any of their spending. My guess, though, is at the end of the month, you aren’t worried about all the extra money in your checking account and stressing over how you will spend the money.

Instead, there is likely a list of things you would like to do if you could afford it. If you have ever uttered the phrase, “I wish I could _______, but I don’t have the money,” then you are already sacrificing something.

Budgets don’t force you to sacrifice. Budgets put you in charge of what you want to give up and keep you from sacrificing what you don’t want to. I don’t even like calling budgets ‘budgets.’ I like calling them spending plans because a budget should be your plan for how to spend your money.

MYTH: BUDGETING TAKES A LOT OF TIME

Unfortunately, the type of complex budgeting some financial coaches do takes a lot of time to set up and manage. But you don’t need to start off with a complex budget. This simple spending plan is a quick-start version of a budget which will provide many of the benefits without spending all the time.

Once you’ve gathered your checking and credit card statements, you can complete your budget in about 15 minutes. This starter spending plan is great for those beginning their journey toward financial independence.

HOW TO CREATE A BUDGET

A simple budget provides a quick estimate of how you spend your money and helps you direct money in a purposeful way. The budget won’t give you a granular plan for your money and how you spend it, but it will begin to give you control of your spending. More importantly, the spending plan will ensure your priorities are the first items funded.

STEP 0 – GATHER YOUR INFORMATION AND A BUDGETING WORKSHEET

Before you start, you want to gather all the tools you’ll need to create your budget quickly. Nothing wastes more time than stopping mid-way through a project to get something you’re missing.

Your previous month’s checking and credit card statements will provide you with most of what you need. Having additional account statements, pay stubs and copies of your tax return will also help. 

Next, get a budgeting tool such as a notebook, worksheet, software or app to help you organize the information. 

STEP 1 – YOUR INCOME

The first step in building your budget is to list your basic income, the money you can count on every single month. Your pay stubs and checking account statements should provide your take-home pay. You should not include overtime, bonuses, or other incentive pay. If you have a job where your income varies, such as food service or sales, list the income you earn in your lowest-earning month.

By basing your budget on the worst possible income scenario, you’ll be able to stick to your plan. If you were to include your overtime or bonuses, your budget would be worthless in the months where you don’t earn the extra income.

Later in the process we’ll add the overtime, bonuses, and high-income months. It’s a lot more fun to figure out what to spend the extra money on rather than trying to figure out what to cut in lean months.

STEP 2 – YOUR LIVING EXPENSES

The next step is to list off the fixed costs in your life. Fixed costs are monthly expenses you must pay to maintain your life. “Maintain your life” means if you do not pay the expense; your health will be negatively impacted, you will lose your job (or other income), or you will break the law.  

Fixed costs include costs such as your rent or mortgage, utility bills, grocery bills (not dining out), car payments, and insurance premiums. Review your credit card and checking statements to find all the expenses you can categorize as fixed costs. Cross them off on your statements as you list them on the budget.

Skim through old account statements and identify expenses that  didn’t appear last month. Most people rarely pay car insurance premiums, buy eyeglasses, or replace tires monthly, yet they are all fixed costs. Identify these and add them to your list.

Once you’ve listed your fixed costs, add the total and deduct it from your income. The remaining balance is what you have to pay for lifestyle expenses.

STEP 3 – OPTIONAL OBLIGATED COSTS

Your optional obligated costs are those costs you have to pay every month, only because you’ve chosen to ‘sign up’ for them. These may be expenses like streaming services, lawn/cleaning services, and premium memberships. The items listed on your statements that you pay monthly but you can live without are in this category.

There is nothing wrong with having any of these expenses, but to accomplish other goals, these are often the best places to look to free up money in your budget. Cutting your monthly cable bill could free up enough for two round-trip tickets to a Mexican resort. It is up to you whether you prefer cable or plane tickets.

Optional obligated costs also include your minimum payments on your credit cards if you carry a balance. You’ll also list any other loan payments not already included in Step 2. Although you can’t ‘cancel’ loan payments without a bankruptcy, you can accelerate paying them off, removing the cost from your spending plan.

Again, review your account statements and cross off expenses as you record them in your budget. Also, look at older statements and identify any optional obligated costs that appear periodically, such as annual membership dues or subscriptions. 

Add up your optional obligated costs and deduct them from your remaining income from Step 2.

STEP 4 – LIFESTYLE EXPENSES

The last step involving your account statements is to list your variable expenses. These are costs that either vary month to month or that you don’t pay every month. Variable costs include dining out, entertainment, clothing, and other expenses you haven’t crossed off yet.

You should also add other expenses that are not present on the account statements. These could be expenses like vacations, new clothes, or holiday gifts. If you spend $600 per year on holiday gifts, break that down to $50 per month.

List the expenses in the budget as you cross them off on your statements. At this point, you should have crossed off all of your credit card charges and checking account payments. If anything is left, categorize it in the most appropriate category.

As you record variable costs, estimate how much you spend each month and add 10%. Unfortunately, these expenses are inconsistent, so you cannot count on your monthly statement or memory for an accurate cost. It is much more likely you will underestimate the actual cost than overestimate it.

Add up the Variable Costs and deduct the total from the income you have left over from Step 3. If you have a negative number, that is OK; you’ll fix it later when you build your budget. You have just identified you may be overspending and why you might be going into debt.

STEP 5 – YOUR FINANCIAL GOALS & WISHES

Finally, add the financial goals you want to accomplish in your financial plan, such as investing for retirement, taking a vacation, or saving to buy a home. As you list the goals, enter the amount you want to save each year toward the goal and a monthly amount you would need to ‘spend’ to accomplish each goal.

Add up the cost of your goals and enter the total under the Goals section. You now have the amount of money you have to free up from Steps 2-4 in order to accomplish your goals!

STEP 6 – PRIORITIZE YOUR GOALS

Once you’ve listed your expenses and goals, re-build your budget based on your priorities. That is, make your budget reflect how you want to spend your money rather than how you currently spend money.

Don’t Ignore Necessities

Begin budgeting your fixed costs by reviewing if you can reduce any expenses. These are the most difficult to change, but you do have some control over fixed costs. You could look at downsizing your home to reduce your housing expenses, reduce your grocery spending by cutting ice cream or processed food, or sell a car and buy a cheaper option with better gas mileage/insurance rates.

If you do find ways to reduce any fixed costs, enter the new expense and recalculate your remaining income.

Focus on Priorities

Next, look at the rest of the expenses in Optional Obligated Costs, Lifestyle Costs, and Financial Goals as a whole. Make sure to include any goals you couldn’t afford before when you do this prioritization.

Don’t simply go down the expenses in the order you originally wrote them. Instead, review everything on the list and choose the one which is most important to you. Whichever is your top priority, write it in your new budget along with the cost. Then, identify the next most important expense and repeat the process. You will discover that some things you never could afford end up high on the list, and there are some things you are currently spending money on that you don’t really care about.

As you enter each expense according to your priorities, deduct the cost from your remaining income. You will keep adding the next priority to your budget until you run out of money.

Anything unfunded in your budget you should remove from your spending, not because the expense is irresponsible, but because you have other priorities you care about more.

STEP 7 –ADD BACK IN EXTRA INCOME

If you were sad to see some of your low priorities go, there is good news! Remember, your income number was based on your basic income, not including overtime or bonuses. You still have the opportunity to fund some of the expenses you ‘cut’ when you earn overtime or get a bonus.

As you earn extra money in a month, you have a list of things to put that money toward. One month, you might treat yourself to something special; another month, you might put the money toward a major goal. Each time you have extra money, you have a list of items like this one:

  • Treat myself to a fancy dinner because I cut those out. 
  • Put extra money into my retirement plan or pay down credit card debt.
  • Throw some extra money into a savings account for that international trip we can’t afford. 
  • Stash extra money into our family travel fund to take a longer trip  or vacation sooner.

Now, instead of relying on extra pay to make ends meet, you can use it to treat yourself to something special. 

If you weren't able to fund your goals, don't worry -- this is not a budget you have to stick to forever! Keep refining you budget over the next few months to reduce those living, obligated and lifestyle expenses until you're happy with your plan. In my last newsletter, I talked about how to calculate your forever home finances. This 15-minute budget method, along with the other tools I shared, will get you a great first estimate for what your forever home costs will be. For more financial tips and news, sign up for my newsletter: https://www.milmoneycoach.com/newsletter. If you'd like a copy of any past newsletters, please send an email to amelie@ccfinancialcoach.com.

Ready to get started? Schedule a call below!