On a Budget - How to Create Realistic Budgets

Now that we've learned about the best way to stick to budgets, let's talk about actually setting them!  


It can be so easy to see budgets as a very restrictive, lock-the-door-and-throw-away-the-key kind of setup. We see them as the absolute kill-joy of all that is fun and exciting, and I think that's part of the issue with sticking to them. Often times when we set budgets, we don't make them realistically, and we don't keep talking about them and adjusting them. But before we get to the HOW of setting budgets, let's talk about our financial situation first. Frequently, when we are setting budgets, we seem to fall in one of these two categories:


Setting tight budgets out of necessity: 

Our income is barely enough to pay our bills, so we are forced to spend a very limited amount on everything and have absolutely no money saved, or only very little saved. 


Setting a budget in order to save up for a future purchase: 

Whether it's for a house, college funds, traveling or just to have money saved for the what-ifs in the future, we are making enough to be comfortable while also trying to tuck enough away for big things we really want or need.


First things first, decide which category you're in.

If you're in the first category, the first thing I'd suggest you do is take a look at all of your bills. Is each one necessary? Are you paying more for certain things than you need to be? Things like TV subscriptions, cellphones and plans, car payments and home/rent payments are the perfect places to examine first.

Oftentimes, if we want to have realistic budgets and the ability to save each month, we have to trade off and get rid of some of the items we currently have in order to get what we need, or want for our future. Sure, you may WANT some of those things, but do you NEED them? 

A technique my husband and I use to help us in deciding on items like phones and cars is paying cash for those things upfront. That way we don't have a monthly payment while we are using them. This usually means that the most expensive and top of the line products aren't going to be realistic for us to have, but I promise that there are plenty of good phones and cars you can save up for that don't require a huge chunk of payment each month (Tip:  Don't compare what you have to what others have. That is a great way to break your resolve to stick to your budget and you will always want to keep up with the Jones', which is a fantastic way to spend beyond your means and never save.) This also means that we often have to wait a few months longer to upgrade at times in order to have the cash in hand, but waiting a few months sure beats paying a monthly bill for years. Plus, you often end up paying far more than the original price if these items have interest.* 

Another good way to make sure you are living within your means is to consider your home and car payment. Add up how much you're paying for those two items every month- it should equal no more than half of your monthly income. (44% of it to be exact**) If it's more than that, you might want to reevaluate if those items are important enough to be living paycheck to paycheck without any freedom within your budgets, and if those things are already the tightest you can go for your needs, you might need to find a higher paying job or a way to bring in more income. 

If you are in the second category, it's important that you evaluate future goals and needs in order to be motivated to save. It's too easy to think you have enough for your current needs, but keep in mind that accidents happen, disasters strike, and kids are expensive. We can't predict the future, but we sure can save and be prepared for it to the best of our abilities.  

Once you have figured out which category you are in and have looked through your bills and decided on future goals you have for saving or paying off debt, it's time to actually set up the budgets! This part used to stress me out and I would feel angry and defeated, time and time again. But then I realized I was doing it wrong! I didn't realize that budgeting was a process, an ongoing conversation, and a team effort.

Keep in mind that this initial budget set up meeting may be difficult, a little frustrating, and maybe even painful but it DOES get better! (Living proof here!) 


Sit down with your spouse (or whomever you are sharing incomes with for your household) and list out everything you could possibly think of that you would need a budget for, as well as other monthly costs you have. (Utilities, insurance etc.) Some typical items are groceries, toiletries, phone bills, house repairs, car repairs, date night, a fun budget for each spouse, family outings, a budget for childrens needs/fun things, birthday gifts, Christmas gifts etc. There are so many you can create. List out a budget for every possible area you would need to spend money on each month and then put a price amount next to each one- a number that is both realistic but also your ideal number. 

These dollar amounts are completely random ones I made up and do not reflect what Kyler and I put towards each of these budgets in our own personal budgeting. 

These dollar amounts are completely random ones I made up and do not reflect what Kyler and I put towards each of these budgets in our own personal budgeting. 

After you've listed out each dollar amount, calculate how much that would leave you to save each month. Is that an amount you feel good about? Is it realistic for your future needs and wants? If not, it's time to go through each budget and make a few sacrifices. 

Talk about each budget. With some sacrifice, (big or small) could you drop that amount to something that would help your saving goals? Groceries is often the hardest to control, but with so many options like price matching, couponing, shopping at Walmart as opposed to Macy's etc, are there different things you could try and put effort into in order to save money and put it towards something else you'd like or need? Talk about each number, and decide on an amount that you BOTH feel good about.

Circle it when the amount feels right to both of you, but keep slashing each dollar amount until it's realistic but also helping you put enough away into your savings or towards paying off debts. 

Circle it when the amount feels right to both of you, but keep slashing each dollar amount until it's realistic but also helping you put enough away into your savings or towards paying off debts. 

It's so important to be open and honest at this part of budgeting! If you agree to an amount but actually find it unfair or unrealistic, your budgets don't stand a chance. Or, if you feel that your spouse spends way too much in one area, tactfully share that with them. Feelings may be hurt regardless but the truth is that our spending habits affect each other, whether they are too tight or too free. (This is not an open invitation to be rude, degrading, or shaming to your spouse. That is a great way to never have budgets work.) Open up, be honest, and figure it out TOGETHER. This may take days or even weeks to finish up, but set a deadline (i.e. "budgets will be finalized by the end of this month" etc) and stick to it. It may even be beneficial to you to work a financial advisor if you both can't come to any agreements. 

In the past, I often kept quiet and agreed to stick to a low budget that I didn't find realistic, but because I was so frustrated with even having to make budgets, I acted like my hands were tied and just went along with whatever my spouse thought would work. But, because of my lack of communication, we set unrealistic budgets thatdidn't  work out. Or, we set realistic budgets but with no real commitment from me, and therefore they failed over and over as well. Don't set yourself up for failure! Talk openly and honestly and KINDLY to one another and you will figure it out. If you decide on it together, it's much easier to keep it together.

One form of keeping budgets- cash in envelopes  

One form of keeping budgets- cash in envelopes  

I'll admit, most occasions where we set budgets in the past, I cried a lot. It seemed to be more than I could do. I didn't even want to do it in the first place and I hated that we had to. I often felt like the failure because since I did the grocery shopping and maintained the home etc. it was typically me going over in the budgets. (About 99% of the time... whoops!) and honestly, I was the one failing, because I was refusing to commit. I was kicking and screaming and my choices were affecting my family. But once I found my WHY, truly dedicated myself to the joint effort, and we figured out the best way to communicate about budgets, the tears stopped and I became excited about making and keeping them! It felt like an exciting challenge that I wanted to prove I could do. 

Once you've finalized your budget, set a timeline within the next few months (maybe around 3-4 months) where you will reevaluate them together and see how things are going. Make sure to promise each other (and keep that promise) to stick to these dollar amounts 100% within that time frame. Make your absolute best effort to keep to these budgets. At the end of the 3-4 month period, meet together and again speak openly about how it went sticking with those budgets. Was your grocery amount realistic or were you scraping by and not getting the nutrition and diversity your family needs? Were some budgets way too high and that money could be put in to savings or rearranged and spent elsewhere? Readjust them and try again. Talk again in another 3-4 months and see how things are going.

Keep in mind that you will likely have forgotten some areas to budget for. That's okay! Add them to the list and evaluate how much they should have in them. It's far better to have it all out there on the table than to skip adding them to the list and then wondering where all of your money goes a year later. Budgets are not a "one and done" conversation- they need to be flexible and ever changing for the needs of your household. If they are uncomfortable to talk about, that's a good sign that you aren't talking about them enough. 

If you want to be successful at maintaining budgets- keep the conversation going! Don't set them and then never talk about them again for the rest of the year- that just wastes time and money and leads to resentment towards each other. Keep checking in with each other and adjusting the price amounts until your saving the amount you'd like to while also having sufficient for your current needs. 

In summary, setting budgets requires:

1- Looking at your current bills and future goals. Can some things be altered or changed in order to make sure you are living within your means and giving you more freedom within your budgets? What future goals do you have for yourself and your family?  

2- Listing out each area you want and need to put money towards each month and deciding how much money should go towards each budget. Talk it out together, be realistic, honest, and make sure you're sticking to your savings goals. Slash until the price is right, and set a time to discuss them again months down the road after they've been put to practice. Give your word and your best effort to stick to these preliminary dollar amounts. You don't truly know until you've truly tried. 

3-Keeping the conversation going! Talk about the budgets every few months and adjust them to be more suitable to your needs and goals. 

Save that money!! 👍🏻 

Save that money!! 👍🏻 

Putting each of these steps into practice has been a game changer for our own budget keeping goals! You can do it! Set a time to talk about finances with your spouse today, it's never too late to change your situation! 


Missed the previous article from the series On a Budget? Read about finding your WHY, here. 


* http://www.investipedia.com/articles/realestate/12/monthly-payment-trap.asp 


** http://articles.chicagotribune.com/2010-05-06/business/sc-ym-0509-spending-karp-20100506_1_mutual-car-repair-income