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How to Make Your First Budget to Save More Money

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By Jessica, Finance Expert on The (Mostly) Simple Life.

After Ben and I got married in 2014, we were earning two incomes, but we also had debts, and started to have to pay for all those adult expenses that have a way of syphoning out all your money. So I taught myself how to make our own budget DIY, understand our expenses and save more money. With our first budget, we understood why we were able to save only ~$40-50 per month.

From living paycheck to paycheck to saving money

We used to live paycheck to paycheck, putting very little money aside. However, over the years, I have improved my budgeting skills and was able to learn exactly where our money was going. We were eventually able to pay off most of our credit cards (over $15,000); buy our house as well as a rental property; save enough money to live a comfortable life. I am well aware that it can feel impossible to start budgeting when you’re trying to figure out how to stop feeling like you’re drowning in your bills and you can barely cover your monthly expenses. That’s why I started to write about our own personal experience so that (hopefully) other people can learn from it.

How we created our first budget

Below is the FIRST budget I put together for Ben and I. The image below is a simplified version to read on a mobile phone.

I classified all our expenses in three buckets: “Fixed expenses” (the amount is roughly the same every month), “Variable expenses” (expenses vary month to month) and “Save to spend” (Big expenses happening once in a while, such as a car or home repair). Save to Spend is also called “sinking funds“.

And, ooops, as you can see on the image above, our savings were only $44 per month in this first budget! Our budget exercise clearly explained why Ben and I struggled to keep our bank account afloat and couldn’t pay down debt faster.

So let’s see now how we created our first budget.

4 simple steps to make your first budget

I will try to make it as simple as possible. How can you get started with your first budget? I put together this step by step guide so that is as easy as possible for you to create your first budget:

1. Start with a simple notebook or a spreadsheet

You must first decide where you are going to keep your budget. You can easily start with a notebook, and gradually upgrade to a Google Sheet or an Excel spreadsheet later.

The main options are the following:

A simple notebook is an easy way to get started and start writing down your expenses. You can also use my Expense Tracker printable.

expense tracker printable

A budget printable, such as the one below:

A spreadsheet on your computer (Excel or Google Sheets).

Online budgeting tools like QuickBooks or apps like “You Need a Budget” (YNAP – an app that’s free for the first month).

Ok, now that you know where your budget will live… on to creating your budget!

2. Write down all your budget categories

It’s time to inventory all your “budget categories”, such as groceries, insurance or restaurants.

Most budget categories will contain several types of expenses. For example, the “Car” budget category will contain gas, car repair, tire replacement or oil changes, as shown in the table below.

There are a lot of budget categories so you want to make sure you don’t miss the big ones. A budget will only work well if it’s COMPLETE.

I’ve listed below the categories used when we created our own budget:

3. Assign a dollar number to each category

For each budget category, you should assign a number – how much you’ve spent, per week or per month, for each “budget category”.  Use your best estimate for each category, track down your receipts or review your credit card expenses  or bank account expenses history. Review all your expenses for the past 2-3 months because not all expenses will happen every month. You can write down a list of your expenses on your notepad and add them up manually for each category, or you can use an Excel Budget Template to enter your expenses and select a category for each.

How do you account for rare – but big – expenses like a car repair?

Those expenses are listed in the “Save to spend” category. For “Save to spend” expenses, I break up the estimated annual spending into small amounts that I fund each month. For example, for “Car Maintenance,” I know that I won’t have to have my car worked on each month, but it will be costly when it breaks down. So, I set aside $110 each month to fund it easily when I need to. This means that annually I put $1320 into my Auto Maintenance budget.

This is how our spending looked like by budget category:

Once you have done all this (not so fun!) grunt work, you are ready to reap the rewards.

4. Start saving! Set a budget for top spending categories (such as restaurants or groceries)

Now that you know how much you are spending per category and where you should cut, I recommend starting by setting a maximum allowed spending for some of the top categories where you know there is room to cut. Set a number and stick to your new budget. For example, I recommend that you set a number for “groceries” and go shopping with that number in mind. It will help you make smart choices and motivate you to decrease your spending. If you go over budget, you know you need to make it up next time you go shopping!

You can also brainstorm ways to spend on the top categories with your spouse, or get some inspiration from our example of how use a budget to save an extra $5,000 per year.

If you are ready to take it to the next step, you can also review our best budgeting tips to save money.

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