Tales from the Wallet: How to Make a Budget

how to make a budgetFor today’s money feature, let’s discuss living within your means — how to make a budget and stick to a budget. What does “budget” mean to you? What tips and tricks have you used to set a budget, pay down debt, save money and protect against lifestyle inflation — and what alarm bells have you used to tell you that it’s time to reassess? 

The No-Budget Budget

I’ve mentioned before that I don’t think every person needs to make a budget — there were years in BigLaw where I would automatically move my second paycheck to savings/investments, living entirely off my first paycheck (and auto-contributing to my 401k). That was enough of a “budget” to me, with no further thought. I knew then and know now I was lucky in those years, and I’m still so grateful for them — that simple decision has laid a great groundwork for me and for my family.

Pictured: MICHAEL Michael Kors ‘Jet Set’ Travel Wallet, on sale for 40% off in purple; at full price in several other colors.

How to Make a Budget When You Want/Need to Be More Strict

There have been other times in my life where I’ve done a massive spreadsheet and reviewed the previous month in order to make a budget and assess my spending. I usually like to total purchases into different buckets: Restaurants. Shopping. Pharmacy. Essentials (mortgage/rent/whatever). (I’ve used Mint for years, but I prefer to do this kind of analysis in Excel — working with the numbers, cutting and pasting lines, figuring averages and sums — it’s a different kind of connection. It’s simple enough to export my transactions to Excel and winnow to the relevant time period. )

Once the spreadsheet is done, I look at our expenditures against our income and see where we are. Are we in the red or the black for the month? Is anything artificially high, e.g., a new appliance purchase or a weekend away? How do I feel about my spending in my categories, even if we are in the black — does anything seem crazy high?

Where to Cut

If we’re in the red, I always ask myself where can we cut easily. The first answer is often found in recurring payments, like a gym membership, premium cable channels, Netflix or NYT subscription you never use, etc. (Don’t forget to check your Paypal account, too — I sometimes forget that I’ve signed up for subscriptions to things like Fresh20 or others that require you to pay and cancel them via Paypal.) The other two categories that regularly need to be dialed down for me personally are shopping, cabs, and things like ordering food delivery from Seamless; I tend to spend more on all of those when I’m stressed. Finally, it isn’t an easy cut to make, but it’s worth a note here: where you live is one of the biggest money decisions you make. AirBnB and roommates, if space allows, are easy-ish options to mitigate spending too much on rent or mortgage. One of the pros to living with a romantic partner is that you can save money, but I wouldn’t advise moving in just to save money or with that as the primary driver; I’ve seen too many relationships go way past their prime because breaking up meant finding new apartments.

Consider Amortizing Expected High Expenditures

When there’s an expected expenditure that has a big impact on the monthly budget, such as a yearly insurance premium, or a fee for signing up my kids for a quarterly class, I’ve tried to amortize those costs over the year. For example, insurance: my term insurance + my husband’s term insurance + home insurance + personal articles insurance are each yearly bills that total $X. $X/12 = $Y, so I’ll set up an automatic monthly deduction to savings for $Y. I like to use Ally for this, because they have a pretty high interest rate (1%, woo woo) and you can set up any number of small accounts, so we have one for “Insurance Fun,” one for classes, one for dental checkups, etc. When the time comes to pay the bill I don’t have to worry about it from a budget perspective; I just move the money over from Ally.

Gauge Your Budget By Automating Investments, Loan Payments, and Savings

In addition to this sort of expected-expenditure saving, I like to automate as much of our savings as possible. The automatic payments we make on our mortgage are always a bit higher than what we owe (we also did this when my husband still had student loans), my husband’s 401K deduction is automatic, and as a self-employed business owner I take my retirement and tax payments off the top before I consider any money as “income.” Where possible I try to automatically invest money for other savings, even if it’s as little as $25 a week. In theory, if you do a big spreadsheet like I’ve described and there are a few months in a row where you’re in the black by a significant amount, then I’d urge you to strongly consider setting up an automatic investment for at least half that amount, to protect against lifestyle inflation and other unnecessary spending. If an automatic investment is scary to you, at least go in and manually move money from checking to savings at the end of the month — after your savings account hits a suitably high number, move it over to another account (Ally) or an investment account. In a way, I use these automatic investments to gauge our budget — if our checking account always seems worryingly low, then I reassess both our lifestyle (via spreadsheet method) and the automatic investments.

I actually have two other Excel spreadsheet methods that I use to assess our finances and make sure we’re living within our means — what I like to call my “snapshot” method where about once every six months I take a snapshot of our whole money picture, as it stands right then — as well as my “financial goals” spreadsheet, which I use at the beginning and end of the year — but those will have to wait for future posts.

Ladies, how do you make a budget and ensure you’re living within your means? How often do you reassess, and what tips and tools do you have for assessing it — e.g., does anyone else do the big Excel spreadsheet method, or the envelope method? Do you use other tools like the You Need a Budget software? For those of you who lived through the worst of the recession a few years ago, how did that change your money habits (or imprint them on you, if you were just getting started then)?

Further reading

  • 10 Ways to Live Within Your Means [U.S. News & World Report]
  • 8 Signs You’re Living Beyond Your Means [DailyWorth]
  • How to Budget Your Money With the 50/20/30 Guideline [LearnVest]
  • Here’s How to Stop the Cycle of Making More Money — and Then Still, Somehow, Spending it All [The Muse]


  1. Getting Older & Better :

    I am a big fan of understanding where my money goes…For Q 1 of this year I printed my two primary CC and sorted by category…then looked at check book to see where other $ went…(i hardly ever pay with cash) Results? I spent a whole lot of money eating out at “ok” places for convenience, not optimal. I did ok with clothes, something i tend to overdo. I made three meaningful charitable donations from my bonus, bought an ipad and saved rest.
    Made note to self to eat at home more and plan more meaningful/fun dinners out.

  2. Anonymous :

    I love my simple no frills excel spreadsheet budget. I adjust it every month as needed, and it has really helped me focus on paying down my student loans quickly (as has Dave Ramsey). I basically have no life (zero fun purchases and one takeout meal per week), but I’m single with no kids anyway and my meager dating life is pretty inexpensive. I have paid almost 15K off since January on an 80K income and hope to be done by early 2019.

    • Getting Older & Better :

      Wow great work on the loan!

    • Dave will be so proud of you!!!

    • Shopping challenged :

      You’re living on less than 1.5 k per month?

      • I think it is totally possible, especially if you have room mates and live in a medium to low cost area. I have done it before. We had two bed room house and three people staying there and my rent was $400 per month. My office and office were five minutes walk from where I lived. So no car payments, insurance payments, fuel money. I cooked most of my meals. I lived comfortably with $1000 per month (which felt like a luxury because I was used to living at $500 per month as a grad student).

        • Anonymous :

          Yup. LCOL area. I don’t buy anything other than groceries and utilities and my monthly splurge is a facial bc it keeps my skin in perfect shape. It can be done depending on how and where you live.

  3. Anonymous :

    I started using YNAB recently and, once I got the hang of it, its been amazing for my finances. The zero based budgeting is so simple. Never really stayed within my budget using Mint and making my own excel sheets never appealed to me.

    • I second the YNAB recommendation. Great tool, and lets you not only see where your money has gone, but plan what to do with it.

      • Third for YNAB. It lets you avoid having to create extra bank accounts and still “amortize” like Kat suggests. Also the manual input is important to create consciousness of your spending. The tutorials are free and helpful and it is flexible enough to use in a few different ways. You can also get it for free if you are a student. For us, the best $60 we’ve ever spent. And they won’t nickel and dime you for phone apps or upgraded versions. It’s all included.

    • Hi, I currently use Mint but I never stay within my budget (mainly shopping). How does YNAB differ from Mint to make you stay within budget?

  4. Anonymous :

    I’m team ‘no budget’ even though our incomes are far from big law. We make about the same after taxes and we both contribute to retirement. Then my husband’s take home pay all goes to our mortgage while my take home pay is used to pay our credit card bills and what’s leftover goes into a bank account used to pay for expenses that can’t be put on credit cards (property taxes, some utilities) and which we occasionally dip into for things like a car purchase or a home renovation. We typically try to keep about $50K in that unless we know we’re saving for something big (currently, it’s a finish-the-basement-fund). If we have $50K in there and don’t have a big purchase in mind, then the remainder of my paycheck goes to the mortgage too. We’re on track to own our home outright and be debt free in two years (when we’ll be 33), which I’m really proud of.

  5. YAY! This is a GREAT thread, Kat! I think all profesional women like us need to focus MORE and MORE on this, especialy b/c many of our men are useless when it comes to budgetting and finance’s.

    I am trying to become more independent in this area, and my dad helps, and he outlines the following areas:

    a> Inflows: Take all of your NET pay check’s and multiply by 24
    b> Outflows: Take all of your expenses (includeing credit cards) and multiply by 12 (1 for each month)

    c> if a is greater then b, then SAVE 50% of the difference in a 401K, and you may spend the remeaning 50%
    d> if b is greater then a, then you need to get another job, or get MARRIED to a guy who will pay the difference.

    Once I master this, I will be fine dad says. I am workeing on it, but it is NOT easy. FOOEY!

  6. I have never done a formal budget. But this is how I live:
    1.Most of my savings/monthly payments (for investment real estate properties, HSA, 401K) are automated and that money doesn’t even come to my hand.
    2. I live with the leftover money for the month.
    3. What ever is left at the end of the month will go towards extra principal payments for the properties I have purchased. From last seven years, I always had an out standing good loan. So I always had the opportunity to make these extra payments. For vacations and any big expenses that I can foresee, just leave this money in the savings account for a couple of months or fund emergency fund if for whatever reason, it is depleted.
    4. Live frugally in general. Think before making any purchase if that is really needed and will bring value/happiness to your life.

    • Shopping challenged :

      That’s been my strategy too. I thought it was working really well for me, but now am wishing I had taken more out at the start of each month for savings. I was told to expect an inheritance, am now realizing that there are “requirements” I had t considered, so personal life and finances are mixed up in an unfortunate way.

  7. My kingdom for 100% cotton :

    Hello! Has anyone had an acetate/synthetic lining of a dress or some other article of clothing replaced with a different lining? I just bought a cotton dress with an acetate lining, and while I love the dress I really can’t stand the lining as I tend to overheat even in cooler temps. Wondering whether anyone’s tried this with a tailor and if it was reasonably priced and well done, or is it a bad idea/crazy expensive from a tailoring perspective. TIA!

    • I suggest ripping out the lining and then buying a separate slip (if needed). Putting in a new lining sounds like an equivalent amount of work to making a custom slip.

  8. I’m a big time spender so I have to really police myself in this area. Dave Ramsey really changed my life, though I’m not “gazelle-like” by any means. Excel is my best friend and I track my spending religiously in it. Doing great now in my 40s but wish I’d been on track much earlier as many of you are.

  9. OP from this morning :

    We don’t have a strict budget (obviously), but apparently we manage to intuitively limit ourselves to almost exactly our take-home pay over the long term. A boatload of taxes, health insurance, 401k match, FSAs, and some commuting costs all come out before the checks hit our account. The rest goes into a checking account that we have mortgage & utilities direct debit from, and from which we pay off the credit cards every month. As far as spending, some months we’re over, some months we’re under, but on a past-year timeline, we were within a few hundred dollars as of last night.

    I do a macro budget/spending analysis a couple times a year and update my spreadsheet of monthly recurring expenses and average monthly estimates based on past-12-month spending for categories like utilities, groceries and maintenance. Usually at the same time I go on a budgeting kick and try to track (and convince my husband to track) our incidental expenses a little more carefully, but we have not been able to make this habit stick, yet. Maybe with the looming doom of third-kid expenses the Xth time will be a charm.

  10. Stephanie L :

    We don’t follow the Dave Ramsey plan as strictly as we used to, but we still use a lot of what we learned.

    The idea of expenses (car repair, home repair, etc) being unscheduled but not unexpected hot home. Since our class I take my mileage reimbursements and put them aside for car repair. When my car repair savings are pretty flush, I put reimbursement towards saving for the next car.

    Having $ set adide for vet bills, health deductible, holidays, etc. has relieved a lot of unnecessary stress. I even paid cash for my car. Now, to make up for those years of lousy income from my old job…

  11. YNAB is the best budgeting system around. It has revolutionized my life and spending in the past year. You should for sure check it out.