How to Build a Budget that’s Right for YOU – NSC Series

How to Build a Budget That’s Right for YOU

Building a budget is one of the most important steps you should take when beginning to aggressively pay down your debt. However, I will be the first one to tell you that you should not repeat what my wife and I are doing to pay off our debt action for action. You see, each family, lifestyle, and living arrangement is different. No too debts are equal and no too lives are equal. When you’re figuring our next month’s budget, use these tips to learn how to build a budget that’s right for you.

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If you are new to our NSC Series, start here!
-If not, you can skip this section-

As some of you may know, we are in the midst of our first ever No Spend Challenge (NSC) which started January 1.

The short story is that my wife and I racked up a ton of debt (read how HERE) and want to pay it off as quickly as possible so that we can live our dream lives (read about our goals HERE). This challenge will help us learn about living frugal, saving money, and paying off our debt faster.

Visit our post, Frugal Living at its Finest: the No Spend Challenge, to view why we are doing the challenge, what the challenge entails, and the rules.

The hardest thing about budgeting and frugal living is doing it alone and that’s why we want to invite you all to join us on our NSC. Sign up below to opt-in to our email community, filled with exclusive tips and tricks for saving money to survive living frugal during your NSC month.

Follow our rules or make your own! Join for one week or the entire month! We know that not everyone is in the same situation we are in. Stick with the No Spend Challenge for as much or as little as you are able in your situation and don’t be afraid to hop on after the starting date (it’s never too late to join in on the fun!).

We’ll be taking the challenge right alongside you – with daily blog posts, encouragements, and exclusive email information and communication: this will be the single, greatest choice you make to jump start the New Year.


How to Build a Budget that’s Right for YOU

We all know that building a budget is an important thing to do to pay off your debt. I know that my wife and I would fail completely if we didn’t have a budget to stick to in order to reach our goals. That being said, not everyone can stick to the same budget – we all have different bills, different needs, and different goals for our lives. This doesn’t mean that your family shouldn’t use a budget at all, but instead that you should follow these steps to learn how to build a budget that is right for you.

Step 1: Determine where your money is going already

When you are building a budget, you need to know where your money is going so that you can allocate it appropriately. You see, if you don’t know where your money is going, you have no money to work with. I’m guessing that since you are working on building a budget, you need money for something or another.

How do you determine where your money is going?

There are many different ways that you can do this. When my wife and I first began our debt repayment journey, we spent a month watching our funds, but if you don’t want to wait that long – there are many other ways to go about this.

You can:

  • Watch your funds for one month
  • If you only use debit cards, check your bank statements
  • Sign up for sites such as mint.com or learnvest.com and they’ll track it for you

Regardless of the system you use, don’t skip this step. The information is crucial as you learn how to build a budget.

Let’s set up an example here by the name of Bobby. We’ll continue to learn about him as we move through the budget-building process.

Bobby makes $2,500 take home pay per month. Bobby’s wife, Alice, is a Stay-at-Home-Mom for their 3-year-old boy, Johnny. Bobby also has $35,000 in debt (not including mortgage) and wants to pay it off soon. He knows that in order to do that, he must learn how to build a budget. Therefore, he has taken the first step and determined where his money is going.

  • $800 – House payment
  • $325 – Utilities and other bills (including Wifi, Netflix, Audible, and Hulu)
  • $225 – Cell Phone Bill
  • $600 – Food
  • $150 – Eating out, renting movies, new clothes, books, etc.
  • $75 – Pull-Ups, Clothes, & Toys for Johnny
  • $350 – Loan Payment

Step 2: Determine What You Actually Need

Once you have figured out where your money is going, it’s time to determine where you actually need your money to go. Let’s look at Bobby’s finances again as we think about this step.

Bobby has a cell phone bill that is extremely high for his wife and himself. However, this type of bill is pretty common in this day and age. Why? Because everyone assumes that they need to go with one of the higher-demand companies and get large amounts of data. What they don’t realize is that they can get basic cell phone service from companies for as low as $5 per month.

Bobby has to ask himself: is this a need or a want? If it’s a need, can we lower the cost somehow? If it’s a want, can we get rid of it?

He determines that cell phones are a need, but the price / data inclusion is negotiable. Therefore, he is able to cut out $200 from his budget.

The most important thing to remember when you are completing this step is to ask yourself those two simple questions:4

1.) Is this a need or a want?”

2.) If it’s a need, how can we lower the cost?

Now, depending on your motives, you may come about this step in very different ways. If you are paying off debt or looking to save a large sum of money, you will want to be as frugal as possible. Therefore, in this stage, if you determine that something is a want, it should be taken out of the budget entirely.

However, if you are simply looking to create a more manageable budget that gives you a little more wiggle room, you should ask yourself these questions as well:

3.) If this item is a want, is it something that will hold us back from reaching our financial goals?

4.) Is there a way to lower the cost on this item so that it becomes more manageable?

Once you have finished making these decisions, you can move on to the next step.

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Step 3: Make it Easy to Follow

The last step when creating a budget is making it easy to follow, which can be kind of tricky to do. Later this week, I’ll show you guys the benefits of using the Cash Envelope Budgeting system, but for today, I want to give you guys easy ways to track your incoming and outgoing funds.

First of all, if you are using this system to pay off debt, remember that all additional funds that you find should be allocated for that purpose. When you find an extra $20 in the budget, don’t buy your family pizza. Put that $20 toward debt (because after a year of interest, it’s worth much more than $20).

Second, if you are using this system to simply track your funds, remember how important savings are. Putting a name on each of your extra dollars can help you to save money for a new house, a new car, college, or retirement.

As you are learning how to build a budget for your needs, you’ll find many ways to structure your budgeting system. However, there are some that work better than others. I personally find that creating a spreadsheet (either in Excel or simply with pen and paper) can make all the difference in the world.

Along those lines, I also budget in 15 day increments (or twice per month on the 1st and 15th). With my pay structure, this works out best for me. You may find that budgeting once per week, once per month, or every other week is better for you and any of these are okay as long as you know what structure you are following.

Here is what you should include within the rows of your spread sheet:

  • Income 1
  • Income 2 (if needed)
  • Housing bill
  • Utilities
  • Cell phone bill
  • Other bills (give each their own line)
  • Fun money (be sure to allocate a small amount of money toward fun so that you don’t go overboard and throw off your budget)
  • Needs
  • Wants (if there are any)
  • Loan payments / Debt payments

Now, you must also add some columns to this effect:

  • Expenses (the list of rows above)
  • Actual Cost (how much you pay on these per month)
  • Paid this month (how much you have paid this month on this bill)

In most cases, column two and three will match (we hope!), but it’s important to write it out twice so you can watch where your funds are going. Keep yourself accountable! A budget cannot do its magic unless it’s followed!

Let’s look at how Bobby outlined his budget:

January Expenses Actual Cost Paid this Month
House Payment $800
Utilities $200
Wifi $50
Cell Phone Bill $20
Food $300
Johnny Needs $40
Loan Payment $350

As you can see, Bobby’s bills total $1,760 this time (whereas in the initial example, they totaled over his income). At this point, Bobby has almost $800 to allocate toward a savings account, toward pay off his debt, or toward buying a new house (or anything else he may need funds for). This means that learning how to build a budget has paid off for Bobby and it will for YOU, too!

How to Build a Budget that’s Right for YOU

By following these three simple steps to learn how to build a budget, you could save hundreds each month! In our example, Bobby saved THOUSANDS every year (and would have his debt paid off in no time). Now, I’m not saying that you need to cut your expenses to this extreme – start with a few cuts per month. Eventually, it won’t seem so extreme to take away Netflix or to pay less for groceries because you’ll be so excited at the amount of money you will be saving by budgeting the right way.

Today is day 19 of our No Spend Challenge and we are busy preparing our own budget for when the challenge ends. We want to be sure we take what we learned from this challenge and put it to use within our budget for next month and you should do the same. Let’s start 2016 off right!

Today’s quote is by Henry David Thoreau.

Quote - Day 19

“We make ourselves rich by making our wants few.” – Henry David Thoreau

Remember that in order to live the life of your dreams, you need to work at it. By learning how to build a budget and making your own wants few, you can make yourself rich! It’s true, it works!

What are some ‘wants’ that you can cut out next month to save you a little money?

Leave your response in the comments below!


Disclaimer: Some of DIY Jahn posts contain affiliate links. While I do earn money through Fronto, Ibotta, and other companies, and bonuses for referring people, all of my opinions on the company are 100% honest and my own. Also, please note that recipes, fitness tips, and financial tips are not given by a professional. To understand what this all means for you, click here.

11 Replies to “How to Build a Budget that’s Right for YOU – NSC Series”

  1. Very helpful resource!!! I love the quote “We make our lives rich by making our wants few”. Thanks for your hard work on this, I know many many people need it!

  2. my step 1: determine how much is the monthly salary. If is variable I estimate the salary as the minimum received in the last several months and keep the fun budget from what is extra.
    step2: then the budget I estimate related to step1, and I am thinking to not spend more than 1/3 of these for a rent/house, maximum 1/3 for food + bills, and the other 1/3 are split between economies, fun etc.
    After I am going in more details, and I am starting your steps.

    Indeed, it is very important to know how much we spend, and for this I am using a very nice tool: home banking (every month I am looking to see how much I spend).

    Of course there are periods when I cannot follow this (in holidays the fun is more :D, when I have guests the food is more, when I am buying a house the budget for house is more etc) but finally the idea is to keep a balance.

    In plus I put a priority:
    1. first the apartment (yep, I don’t want to sleep on streets)
    2. food
    3. electricity
    etc.
    and if I need to cut down, I start from bottom to top, to not enter in frustrations. I have a friend she had another priority: she preferred to loose the apartment and to keep the car and the smoking habit …

    1. That’s a great system too! I love that you put them into priority and when things need to be cut, you take off the bottom. I hadn’t thought of doing it that way, but I really like it! I will definitely be using that in the future when we are setting up budgets in our new home. Thank you for sharing and commenting! You always give such helpful and open replies and I LOVE getting to read them and chat with you 🙂

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