How Do I Budget?

Budget. The word alone sends chills to many people. Here are some things that people equate with budgets. 

Budget = Restricting 

Budget = I Am Broke 

Budget = Controlling 

Budget = No Fun 

Budget = Constricting 

Budget = Not going to do it! 

Most people have tried budgets … and failed. It was a bad experience and many will say that they aren’t EVER going to budget again. 

I want to make a deal with you. How about after reading this post, trying for just one month this method that I will teach you? Just give it one shot. Just one. My hope is that you will try a budget for the next month. 

I am going to share with you the exact process that Jenn and I took to prepare a budget that works. Guess what? The very day that we started budgeting was the very day that we started winning with money. 

Some might say “I hate budgets” and “I don’t need no stinkin’ budget,” but I would ask them the following questions: 

  • How are you paying for Christmas this year? I am paying cash. 
  • How much is your car payment? I paid cash for my car. 
  • How much did you invest this month? I have invested for retirement for 287 months in a row and my kids’ college since February 2002. 
  • How much money do you owe on your credit cards right now? I owe $0. 
  • When was the last time you had a great discussion on finances with your spouse? Not a fight. A great discussion. Jenn and I develop a spending plan together every single month. 
  • If your car broke down tomorrow, do you have money in the bank to pay for it? Car repairs are not financial emergencies. I am not surprised when my car breaks down. Why? There is a car repair joint on every corner of every street of every town and city in the country. It is normal for cars to break down. 

The 5 Steps of Setting Up a Budget 

In reality, a budget is nothing more than telling your money where to go. I have heard Dave Ramsey take the definition a humorous step further – a budget is nothing more than telling your money where to go instead of wondering where it went. 


So, our first step in budgeting is: 

STEP 1: Understand that budgeting is nothing more than “telling your money where to go.” 

Step One is the largest hurdle of any part of budgeting. The rest of budgeting is a breeze once you understand what a true budget is. Once you have internalized Step One, it is time for Step Two. 

STEP 2: Determine the income (take-home pay) you will receive during the NEXT month. 

There is a very key word in Step Two – the word “NEXT.” I have learned that preparing a budget for money that has already been spent is not very fruitful. It is like being a Monday-morning quarterback for your finances. You want to get that money back. You wish you could have that money back. But it is gone. 

The budget must be completed before the month begins and before the money ever arrives. You are developing a spending plan for your money before you ever get it. The only way I have found to stop saying “I can’t believe I spent my money that way” and “I wish I could have that money back” is to develop a spending plan before the money was paid to me for the month. 

So, think about it. What income will you receive during the next month? 

Here are some common ways that people receive money during the month. 

  • Paycheck 
  • Bonus 
  • Side Job Income 
  • Child Support 
  • Alimony 

Whatever your source of income is, write it down. In fact, write it down and put the dates that you will be paid this money during the next month. If your income is unpredictable, write down the amount of money that you can count on. 

If you have at least one month’s worth of expenses in the bank, download the Monthly Budget.  

Because you have at least one month’s worth of expenses in the bank, you can sum up your total income and enter the total income in the Income section at the top of the budget form. 

If you are living paycheck-to-paycheck, download the Weekly Budget. 

Because you cannot pay all your bills at the start of the month, you will need to develop a budget for each individual paycheck. Make the dates at the top of the budget form match up to your income dates and enter the income in the Income section at the top of the budget form. 

This income is what you will be spending on paper before the month, the money, and the bills ever arrive. 

STEP 3: Enter all of your expenses for the NEXT month. 

This is where you spend your money on paper. In Step Two, you determined your total income for the next month, and it is now time to spend it on paper BEFORE the month arrives! 

These expenses are the real, actual expenses that will happen. I have seen many people include average expenses for the year. Averages don’t work. Enter the real expense because this budget needs to be highly relevant to the next month. 

If the expenses are not relevant to the next month, it is highly possibly that you will consider the budget irrelevant for the next month. 

If you don’t know the actual cost (utilities, gasoline, etc.), enter an educated guess based on recent spending. 

Enter all of the expenses into your budget. 

The budget form has some excellent features built into it. 

  • If OUTGO exceeds INCOME, the TOTAL will turn RED and tell you how much you have overspent! 
  • If INCOME exceeds OUTGO, the TOTAL will turn YELLOW and tell you how much more money needs named! 
  • When INCOME = OUTGO, the TOTAL will turn GREEN … This is the ultimate goal. 

Even if the budget TOTAL turns RED, keep typing in the expenses that you know are going to happen in the upcoming month. The goal is to get all of the known expenses for the next month on paper. 

Yes, you will later have to remove some expenses or boost your income to get to GREEN, but the goal right now is to get all of the expenses into the budget form. By having all of the expenses in the budget, you can make a much more informed choice on what will be removed from the budget. 


Your income is limited. If you bring home $3,000 during the next month and spend $3,320, your spending plan will not work. Where will the $320 come from? It will have to come from savings or from debt – usually in the form of a credit card. 

Your income is limited. Let me take it one step further. Let’s say you are really blessed and bring home $70,000 during the next month (don’t laugh – many people do). If you spend $71,320, your spending plan will not work. The $1,320 will have to come from somewhere – and many times it is made up with debt. 

In Steps Two and Three, we entered all of the income and expenses into the budget and, no surprise, the OUTGO exceeded the INCOME.  

There are two options when the OUTGO exceeds INCOME: 

  • Increase the INCOME – 2nd job, Overtime, side job 
  • Decrease the OUTGO – Decrease the expenses 

In this budget, let’s say that this family receives a salary. They cannot quickly increase their income, so they are going to focus on reducing their outgo. They need to eliminate $320 of spending. 

NOTE: This is not a “perhaps, perhaps, perhaps” type budget! This is how the family will actually spend their money next month. Remember – if your budget is not 100 percent relevant to you and your family this month, you will ignore the budget and use it to start a fire in your fireplace. 

What expense can they eliminate?  

After working together on their budget, the family decides on the following changes.


If you want to see the entire EXACTLY ZERO budget, you can view it here 

You might be saying, “These people are crazy. They cut out 1/2 of their dining out, entertainment, blow money, and all of their babysitting money. They are crazy.” 

I would say: “Nope, they have had enough. They are so sick of living paycheck-to-paycheck that they are willing to live differently and change their lives forever. All because of a little sacrifice now.” 

Jenn and I prepare a written spending plan every single month before the month begins and before any of the money gets to us. This is the reason we have won with money. 

STEP 5: Follow the budget. 

You have followed all of the steps. You now have a spending plan for the next month. It is time to live by it. After all, it was you who told your money where to go. Why wouldn’t you follow your plan? 

As I have helped others develop their own spending plans, I have seen people completely break free of debt. I have seen people pay off their mortgages, marriages restored, and the hopeless become hopeful. 

That is what your budget will allow you to do. Develop a spending plan every single month before the month and the money arrives and then follow it. You will never regret this decision. 

Will this work? 

Maybe you have read this post in a guarded, protected way while wondering “I wonder if this will work for me? I don’t want to get my hopes up. I’ve tried this before.” I say that you can do this. I believe in you! Why? Because I was there. I had an average bank balance of $4.13 and the stress was awful. The shame was real. I did not know how to break free. 

Planning my spending one month in advance was what broke Jenn and me free. It will work for you, too. 

Why not pull up a free budgeting tool and get started winning with your money today? 

If you have enough money in the bank to pay all of your bills at the start of the month, use the Monthly Budget. 

If you are living paycheck-to-paycheck, use the Weekly Budget. 

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