Budgeting 101

Wednesday, November 01, 2023

Budgeting 101

For the longest time, hearing the word “budget” was like hearing the word “moist” for the majority of people. I definitely didn’t like it. And for the longest time, I couldn’t explain why.

At least, I never tried to.

I kept my feelings about budgets and budgeting to myself. The reason I did this was because there was a lot of embarrassment and shame. I technically knew what a budget was, but I always had an excuse for why I didn’t have one, or why I didn’t need one, or why I couldn’t have one.

Tell me if this internal dialogue sounds familiar:

I’m just bad with money. I don’t have any money. My income is completely unpredictable. I owe so much money to different people and there’s no way I can pay it. I can barely pay my bills every month…

This is how I spoke to myself constantly about money. It was almost as if I was convincing myself that no matter “how important” having a budget was, this rule still didn’t apply to me.

But when I tell you that budgeting has changed my life, I truly mean that.

At 32 years old, my wife and I started budgeting for the first time in our lives. And do you know what happened? We paid off $114,000 of debt in 26 months!

But there was more that happened as a result:

  • ​We stopped relying on debt to solve our finnacial problems.
  • ​We stopped making excuses for our financial problems.
  • ​Our communication around finances became better almost instantly.
  • ​We both had a much better understanding of where our money was and what we were working towards.
  • ​We started dreaming about our future and what we wanted it to look like; because we now knew it was possible to achieve.
  • ​My wife and I both started business and left our full-time jobs.
  • ​We increased the amount of money we gave.
  • ​We started investing into our retirement.
  • ​We started paying more towards our mortgage.
  • ​We started a family.
  • ​...

Like I said, it completely changed the trajectory of our lives. And it’s why I’m passionate about you having a plan for your money, which is all a budget is.

Now, if you don’t currently operate off a budget, or you don’t feel confident in what you’re doing with your money, then we first need to review some of the basics because it sets the stage for whatever your financial goals are. (I’m a big fan of learning the rules so you know how to break them.)

So today, I want to briefly talk through how we set up an initial budget.

And if you don’t have a budget because you’ve been afraid of creating one, looking at one, talking about one, etc. - let me be the first to tell you that I used to be the exact same way. I was most definitely budget-phobic. I always considered a budget to be restrictive. I also saw having a budget as meaning there was "something wrong with me," or that "I needed help."

I'm here to tell you ... there's nothing wrong.

As most of us know, every major company in the world has a budget and an entire team of people dedicated to monitoring & managing said budget: Apple, Disney, Scrub Daddy...all of them.

They have these budgets in place because it keeps track of spending and helps to identify where they may be spending more or less money than they intended to. It’s the lifeblood of their business; because without money, the business fails.

Now, are you going to fail at life if you don’t have a budget? No.

But it will help in more areas than you realize. Of course, a budget will help you track and prioritize where your money is going; but it will also have an effect on your emotional and mental health. From a survey led by the CFP Board, it was discovered that having a household budget positively affects a consumers’ emotional state by reducing stress, anxiety, and frustration. Consumers who have a budget feel more in control (62%), more confident (55%), and more secure (52%).

So, just as it’s important for these big companies to have a budget, it is also important for us to have one. It helps us stay on track to reach our financial goals. It keeps us from accumulating more and more debt. It reduces the likelihood that you’ll be living paycheck to paycheck. And because money is the tangible representation of our time (the life energy we spent to earn said money), a budget supports you in being more intentional with not only your money but also your ever so precious time.

I’m convinced that a budget is THE TOOL you'll need as you work towards financial freedom. So whether you're paying off your debt, gearing up for a big life event, saving up for a dream vacation, investing, or even just maintaining your household, you're going to need to make sure that your money is as intentional as you are. And a budget helps you do this.

I prefer, use, and teach a "Zero-based budget" which simply means that every dollar that we make in a month is spent/allocated on paper until we get to zero (income - expenses = zero). In essence, we are giving every dollar a job to do.

I also prefer this method to the more-common “50/30/20” method because it’s more specific and it allows you to be more in control of your money. A zero-based budget doesn’t pigeon-hold you into allocating, or not allocating, the wrong percentage of your money towards goals/values/lifestyles that aren’t important to you. So that’s why I prefer teaching the basics by teaching a zero-based budgeting approach.

And before I say anything else, ALL OF THIS is customizable. You are the flipper ... so you decide. The purpose of this blog is to give you a high-level overview of budgeting.

So with that being said, let’s go ahead and get started.

The first thing you’re going to need to do is gather your numbers. What numbers do you need to gather? This would include things like: Bills, Debt Payments, Income (Net), and your monthly expenses. Anything that you’re spending money on, or any money that you’re making, counts as “numbers” we want to start gathering.

(*PRO TIP: I would highly suggest you take a look through the last few months' worth of bank statements to get a better idea for what you spend money on and how much.)

Next, you want to break the numbers down into categories.

Here is a list of general categories you can start with:

  • Income (net income - income received after taxes/contributions/health/etc.)
  • Debts (all debt payment amounts)
  • Current Projects/Investments (for example, my wife and I contribute to our Roth IRAs and our daughter's college fund from this category)
  • ​Housing (things like mortgage, security, utilities, internet, etc.)
  • ​Food (eating out, groceries, delivery apps...)
  • ​Transportation (gas, tolls, etc.)
  • ​Lifestyle (this is where we put things like streaming services and our "fun money")
  • ​Insurance/Tax (we pay for life insurance premiums and put them in this category)
  • ​Sinking Funds/Savings
  • ​MISCELLANEOUS (important category - this is for those "unexpected" expenses that come up during the month. having money allocated to this category helps to make sure we aren't overspending/blowing our budget when those unexpected expenses come up)

Once you have all of your numbers and have divided them into categories, it’s time to start putting it on paper. So the first thing we’ll do is write down your income. This number now becomes your monthly spending limit. And because it represents the most you’ll be able to spend in a given month, it's good to start with this number so we have an idea of what we are working with.

Next, you're going to look through those bank statements and numbers you gathered to identify the payments you make each month. These "fixed" expenses are the easiest to be categorized first as they are the most consistent. “Fixed” simply means that it is the same amount being paid every month and [more than likely] doesn’t change.

Then, we'll want to take a look at our "variable" expenses. These are the expenses that are one-offs or can fluctuate from month to month. A perfect example of this type of expense would be groceries. And so, because these expenses fluctuate, we want to add in target spending amounts for each of these line items.

As a note, make sure you’re also keeping in mind your financial goals. Your budget is a physical representation of your priorities (when it comes to money). So if there is something you want to start working towards, make sure you also make it a priority on paper within your budget.

You will keep allocating money into categories until the total amount of expenses equals your net income (again, income - expenses = zero). This means that your budget is balanced and this is when we officially have our zero-based budget completed (because all dollars are accounted for). If you find the numbers don't add up, we only have a set number of options: we can make more money, spend less, or do a hybrid of both. Keep adjusting your budget until you’ve balanced it out and allocated all of your dollars.

Then, once the budget is on paper, we start working the plan. Your main budget becomes the map on your road to financial freedom. Remember: we can always go outside of the lines a bit, but it's important to stay focused on where we're going (your financial goals, or your "why") so that we can always get ourselves back on track.

Now, as far as tracking expenses throughout the month, I highly recommend using an app. With apps, you can very easily track your spending throughout the month. I also recommend you consider paying for the premium version which syncs to your bank. The reason I recommend this is because it ensures that you don’t miss a transaction. There are several wonderful applications out there, but my wife and I personally use EveryDollar.

Remember, this budget is going to take time to get used to; but we want this to be a new lifestyle for you. This is not something that will just stop once we're done paying off debt or completing a financial goal. When we accomplish a goal, we simply create ourselves a new one - always staying intentional with our cash.

I think it’s also important to say that you will not always be perfect with your budget. My wife and I go over budget limits all the time. This is NORMAL. You are NORMAL.

You can expect this new budgeting practice to take you a few months before you really start to feel comfortable. So make tweaks as you go, and understand that this is an ever-changing tool. And always know that you have total control. We want to make your budget suit your life, your goals, and your needs.

Because if it’s inconvenient, you’re going to be inconsistent.

So, there you have it. Budgeting isn't just a chore - it's your path to financial freedom, a stress-buster, and the ultimate tool to make your money work for you. It's like your financial fairy godmother. So embrace it, and start that budget. It paves the way for your journey to financial success.

You've got this!

And I'll be here, cheering you on every step of the way.

Stay Curious,



Kyle Fowler

Founder of Financial Flippers

The personal finance world is packed with TONS of information. And while it's not all bad, it's not all good. I work hard to make sure I am sharing helpful content that keeps you on track while still providing different perspectives. If you ever have questions, want to share ideas for other topics, or want to know more, shoot me an email: kyle@financialflippers.com

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