How To Budget for Christmas: Without Going Into Debt!

How To Budget for Christmas: Without Going Into Debt!

You know what they say: Christmas is a time for giving!

But unfortunately, Christmas is also a time for overspending, extravagance, and going into debt.

It has become so ingrained in us that we need to buy everyone everything that their heart desires, that most people don’t even bat an eyelash at spending way more than their finances allow them to and racking up some credit card debt over the holidays.

But I disagree with this practice!

As someone who has been in debt and is now out of it, I can tell you that nothing is better than living within your means.

So in this post, I’m going to show you how we create a realistic Christmas Budget for our family, without going into debt… or missing out on any of the holiday fun!

And if you prefer to watch instead of read, check out this video:

How to Create a Christmas Budget

1) Determine How Much You Can Spend

This is where most people make a mistake when it comes to budgeting for Christmas: they start buying first, and they don’t look at their budget until after they have already spent too much.

Start by looking at your budget first and figuring out exactly how much money you can afford to spend.

I recommend never going into debt for Christmas and only putting things on your credit card if you can (realistically) pay it off in the same month that you purchased it in.

If you are already in credit card debt, don’t go any deeper into debt.

If you can only afford to give one small gift per person to your immediate family members, then that’s all you should do. Trust me, Christmas isn’t worth going into debt for.

A lot of parents have a hard time with this because they are worried about their children feeling left out. But honestly, it’s just part of life!

If our kids wonder about their friends receiving more gifts for Christmas than they get, we talk with them about money.

We discuss how everything in life costs money, every family makes a different amount of money, and how every family chooses to prioritize their money differently.

Check out this post if you want more tips for how not to worry about keeping up with the Joneses.

Decide on an amount that you will spend on Christmas that will work with your budget, and determine to stick with it no matter how awesome that cool new toy is!

2) Start Saving Early

The earlier that you start thinking about your Christmas Budget, the better prepared you will be to purchase the gifts on your list without going into debt.

Have a Christmas Bank Account

One way to plan for Christmas all year round (and to let yourself spend a little more if you want to) is to create a Christmas Bank Account.

To start a Christmas bank account, all you need to do is take the amount of money that you would like to spend on Christmas and divide it by 12. Then, when you get paid each month, take 1/12 of the money and put it into the bank account.

When Christmas rolls around, you will have all of your Christmas money saved and ready to use.

(Check out all 7 Bank Accounts that every family should have here.)

A Beginner's Guide to Creating a Christmas Budget

3) Start With Your Immediate Family

Once you know how much you want to spend on Christmas total, decide how much you want to spend on your kids and on each other.

We didn’t used to start with our immediate family when we determined our Christmas budget…

…and then there were a couple of Christmases where Ross and I didn’t get each other a single thing because we had spent our Christmas budget before we got around to spending anything on each other.

Now we always start with how much we want to spend on our immediate family before we even think about spending anything extra on anyone else!

4) Make Your Lists

Now take the total amount that you are going to spend on your immediate family, and decide how much you want to spend on each person.

You don’t have to worry about spending the exact same amount of money on each child…

I actually don’t think that I have ever spent the same amount on each child. And that is because when we are deciding what goes on their lists, we figure out what they need first.

I’ve found that it changes from year to year who ends up getting more because their needs change from year to year.

Last year we spend more money our younger daughter because she was 18 months old and had primarily been playing with her sister’s old toys. She needed her own special doll to play with and some other toys that weren’t just hand-me-downs.

This year our oldest daughter will be getting more gifts because she has more needs.

We have never seen the point in spending more money on one child just to even the playing field because, honestly, kids don’t care how much you spend on them or their siblings.

As long as you are giving gifts to your children that they truly want or need, they will be happy.

(If you want to see exactly how we make our lists for our kids, check out How to Have a Minimalist Christmas With Kids.)

I often like to follow the “want, need, wear, read” rule, but I don’t use it every single year. Some years they don’t get any new clothing, and sometimes they have multiple needs. But if you are trying to have a simplified Christmas list, it’s a great place to start.

5) Talk To The Grandparents

Getting the grandparents involved is a great way to save money and still get your children presents that they would love.

Like I mentioned in this post, almost as soon as I know what I want the girls to receive for Christmas, I call my mom and see if there is anything on the list that she wants to get them.

This helps us save money, it reduces the clutter in the house because I’m just re-distributing the gifts that I already wanted them to receive, and it lets my mom know that I will like everything she gets them even with my Minimalist preferences 🙂

How to Budget for Christmas

6) Then Decide on Extended Family Gifts

Only after you’ve figured out what you can afford for your immediate family should you figure out if you want to exchange gifts with your extended family.

This concept might seem strange if you’ve always given gifts to your extended family, but you actually don’t have to continue doing this… especially if you are on a tight budget.

Don’t Be Afraid to Change What You’ve Done in the Past

When we had two incomes before had children, we did extended family gifts for both sides of the family every year.

But once we became a single-income family, we decided to change how we did things.

We now only exchange gifts with the side of the family that we are spending the holiday with.

Draw Names

Another way that you can save money on extended family gifts is to draw names instead of just buying something for everyone.

We did this with both sides of our family even before we were on one income.

It’s a nice way to spend more money on a nicer gift for someone else, and it allows you to receive one nicer gift instead of a bunch of things that you don’t really want or need.

Budget Boosters

If you are reading this and thinking that you haven’t saved enough money for Christmas this year, here are some things you can do:

1) Sell Some Things

Who doesn’t like earning some extra money… and selling some items will also help you get rid of a few things before you get a bunch of new stuff in your house that you need to declutter.

(Just kidding… I love Christmas, just not clutter that can sometimes come with it :D)

2) Decrease the Number of Gifts

If you don’t have enough money to buy your kids all the gifts on their list, scale things back, and just give one or two gifts per child.

You will be able to get them something a little nicer this way as opposed to if you buy them a lot of cheaper gifts.

How to Create a Family Christmas Budget

3) Buy for Less People

It can be hard to decide not to exchange gifts with extended family or friends, but I promise that you will be far less stressed about sticking with your budget if you have fewer people to buy for.

And remember that just because you decide to buy for less people this year, doesn’t mean that you can never do gifts with your extended family again.

Once you get your budget under control and pay off any debt that you have, you can always go back to buying for everyone again.

And remember that you can always draw names if you still want to participate in the extended family giving without having so much financial burden!

Ready to Stop Feeling Stressed About Finances?

Then check out Master Your Money!

In Master Your Money, you will learn how to 

  • Calculate Your Net Income
  • Track Your Spending
  • Calculate Your Monthly Expenses
  • Determine Your Fixed & Flexible Expenses
  • Set Up a Budget
  • Pay Off Debt
  • Create Savings Accounts
  • Donate to Charity

Master Your Money walks you through exactly how to take charge of your finances so that you can afford to live the life of your dreams!

Plus you will receive the Money Mastery Workbook and Spreadsheet and email support from me anytime you have questions.

I hope to see you inside the course!

(Or if you are more of a do-it-yourself kind of gal, you can check out my DIY Master Your Money Resources!)

Want 7 Extra Hours Every Week? Grab the Streamline Your Home Quick-Start Guide!

You may also enjoy…

If you are looking for other ways to make your holidays easier, you might enjoy

How to Have a Minimalist Christmas With Kids

How to Meal Plan for the Holidays Like a Minimalist

The Best Intentional Gift Ideas for Kids

Should You Declutter Before or After the Holidays?

See you on the next one! Kassy
How to Create a Family Christmas Budget
How to Throw A Special Birthday Party for Your Kids When You’re On A Tight Budget

How to Throw A Special Birthday Party for Your Kids When You’re On A Tight Budget

How to Have an Awesome Birthday for your kid when you are on a tight budget.

A lot of people don’t think that you can stick to a tight budget when you have kids.

I mean, kids are supposed to add a lot of stress, stuff, and… well… expenses to your life! And even if you were able to get onto a strict budget when you have kids, what are you supposed to do about birthdays??

Birthday Parties these days almost seem to be a competition of who can throw the most elaborate party for their kids. It can seem like you have no choice but to put it on the credit card so your kid isn’t the weird one without a bounce house at their birthday.

So how could you navigate birthday parties as a family on a budget?

The answer is to go simple.

Having a Minimalist Birthday Party will make it much easier to stick with your budget, and it will reduce the amount of stress and stuff in your life as well!

So I’m going to show you how you can still have awesome birthdays and stick to your budget as well.

And if you prefer to watch instead of read, check out this video:

1. Skip The Decorations

Let’s face it, the decorations can be expensive, they take a lot of time to set up, the kids usually don’t care about them, and they are just going to end up in the garbage at the end of the night!

If you are on a tight budget, cutting out the decorations will save you money and time before and after the party!

2. Forget the Party Favors

Kids don’t need a reward for going to a friend’s birthday party. Playing with their friends and eating yummy food should be all the reward they need!

Party favors can also be surprisingly expensive, especially when they are usually very cheap trinkets that will be played with a couple times before they end up cluttering up your friends’ houses.

Trust me, the kids won’t miss them and the parents will probably thank you if you skip the party favors!

3. Go Potluck Style for Food

Some people may find this tacky, but we have never had a party for either of our girls where we provided all of the food for everyone.

We have done everything from grilling at our house and asking everyone to bring what they want to grill plus a side dish for everyone to share, to having a picnic at a park and asking everyone to bring their own picnic lunch, to having a take-out party and telling everyone to bring their favorite take out.

The take-out party kind of happened by accident, but it was a huge hit!

I wasn’t planning on having a party for my oldest daughter’s second birthday, but a bunch of our family on both sides ended up being in town on the day that we were going to celebrate. Since I was planning on getting take-out Thai Food (her favorite) for our family anyway, I just told anyone who wanted to join to bring their favorite take out.

My aunt loved it because she isn’t a big Thai food fan, and she wanted the Spaghetti Factory instead. Everyone got to enjoy their favorite takeout while spending time together and celebrating.

How to Have a Minimalist Birthday Party for Your Child on a Tight Budget

4. Make the Cake Instead of Buying It

I know it’s fun to purchase a custom cake for children’s birthday parties… but you can save so much money if you make it yourself!

Or if you aren’t much of a baker (like yours truly) ask a relative or a friend!

My mom is the resident baker in our family. She makes amazing-tasting, gorgeous-looking, gluten-free, refined sugar-free cakes and pies for every birthday party.

People who like to bake will take it as a compliment if you ask them to make a cake for your party.

And even if you purchase all the ingredients for them in advance, you will still be saving money compared to if you order a custom cake.

And if you don’t have any relatives who like to bake, grab a box cake at Walmart! My grandma made those for every birthday growing up since they were the cheapest option, and you know what, they were delicious!

5. Have the Party Somewhere Free, Like at Home or a Park

I know it’s super cool to rent out a bowling alley, or museum, or trampoline park, but it’s also super expensive!!

A great way to save yourself some mullah is to host the party at home.

We have had parties at the park, at a splash pad, at our house, or at a relative’s house (which was super fun because they had a pool!).

One of my daughters’ little friends just had an at-home High Tea Party complete with crafts and the adults serving the tea for them. The girls had a blast!

You can be really creative and have a special party without all of the extra bills.

The kids usually have the most fun when the party is the most simple.

6. Limit the Guest List

A great way to cut the bill down for the birthday party is to keep the party small.

If your child is an extrovert like my oldest is, give them a limit of how many people can come, or do a party where everyone contributes to the food as I mentioned above.

Or you can offer them more time (like a full day or weekend) with one really special friend.

7. Ask for No Gifts

Why would you want to have a no-gift party when you are trying to save money? Wouldn’t it make sense to have other people give your children gifts so that you don’t have to buy so many?

Actually, no.

Because when other people give your child gifts for their birthday, you can feel socially obligated to give all of their children birthday presents on their birthdays.

Since we do No Gift parties, I don’t feel like I need to bring gifts to any of the other kid’s birthday parties that we go to, and it saves me money all through the year.

Sometimes, if I know the party will be small for one of their friends I will bring a gift, but often the children receive so many new things that they don’t even get to open them all at the party.

I know it may seem a little awkward to ask for no gifts, but it isn’t hard at all once you get the hang of it!

In my experience, most parents are relieved to know exactly what is expected as far as gifts go and are happy when they don’t have to run to the store and spend money before the party.

We have asked for No-Gift Parties in 3 different ways:

  1. We spelled it out! Don’t be afraid to ask. We created a Facebook invitation for my oldest daughter’s 3rd birthday and I simply wrote on the invite, “No gifts, please 🙂 She just wants to spend the day at the splash pad with her favorite people!” This is the best approach if your group of friends is used to doing a lot of gifts for parties because no one will be confused as to what is expected.
  2. We didn’t specify that it was a birthday party. One year, we just sent out a text to our friends saying that we wanted to go to the park and spend the day and anyone who wanted to join could us. People obviously found out that it was her birthday when they got there, but we had so much fun just hanging out and not worrying about it being a party. To this day my oldest still talks about it being one of her favorite birthdays.
  3. We didn’t give a lot of notice. One year we didn’t plan to have a party at all and had thought we would just spend the day doing special things with our family. But when we asked our oldest the day before her birthday what she wanted to do, she said she wanted to eat in the backyard with all of her friends. So I shot a quick text to all the parents and asked if anyone was free to come over the next day. Amazingly everyone was! I didn’t specify “no gifts” since it was such short notice and I figured most people wouldn’t have time to get anything anyway. Only one friend brought a gift and everyone else just brought homemade cards (which she loved!).

8. Go Simple With The Gifts

I know that we all want to give our kids the most amazing birthday ever, but when you are on a tight budget, you need to go simple.

Simple gifts are often cheaper, they encourage imagination, and they tend to get played with longer than more flashy and expensive toys.

Simple toys will generally get a more subdued initial reaction from the child, but they get so much more enjoyment from them down the road.

This year for my oldest’s birthday we built on something that is already a passion of hers like I talk about in This Post, riding her bike!

We got her a water bottle holder, a basket, and her grandparents got her a bell. She was thrilled with the additions to her bike and will get a lot of use out of these simple gifts in the coming months (or years!).

If you want some ideas for how to give simple gifts to your children and see even more minimalist gift ideas for your kids, check out The Best Intentional Gift Ideas for Children.

Can You Have a Kid's Birthday Party on a Tight Budget?

9. Get Relatives to Collaborate on Gifts

If you want to get your child a larger gift, but your budget doesn’t allow for it, see if you can get your family members that would normally buy your child a gift to go in with you on the one item.

We have done this several times with our family when we wanted to buy our children larger gifts like a Strider Bike or a Museum Membership. (Remember to check Craigslist for large items like bikes too! We found a Strider Bike on Craigslist still in the box for half price!)

Even if each set of grandparents and/or aunts and uncles only contributed $10-$20, it still makes the larger present much more feasible for you to be able to pay the difference.

10. Have An Amazon Wish List For Each Child

If you don’t have a large budget and there are many things that your child would like, start an Amazon Wish List for them.

You can let any grandparents and aunts and uncles who want to give the child a gift know that they have a wishlist and give them a link directly to the list.

Even though we want to be able to get our children everything they want, they are not going to care if you, or grandma, or auntie happens to be the one to purchase the item.

11. Have a Fiver Party

If you have a group of friends that are used to giving gifts, throw a Fiver Party as a less expensive option for you and your guests, and a way to get a more intentional gift for your child.

When you throw a Fiver party, you ask your guests to bring a $5 bill instead of bringing a present.

Be sure to let your guests know what the bigger gift will be!

If you want to throw this type of party, simply put on the invitation “No gifts please, (insert child’s name) just wants to spend special time with friends. If you want to get them something, please bring $5 instead… (insert child’s name) is saving for a (insert the desired item)!

I recommend using Facebook or texts to invite people instead of spending money on paper invitations. Then you can save money and the environment at the same time!

12. Have a Special Birthday Week Instead of Focusing on One Party

We started this little tradition when the Covid-19 Pandemic hit right before my younger daughter’s 2nd birthday. Since she is my introverted child, she didn’t necessarily mind not being able to get together with friends, but we still wanted to make her birthday special.

So I got the idea to ask her what she wanted to eat for the next week. She listed off all of her favorite meals (including K-Loaf twice!) and we had a week full of special meals and desserts… and lots of K-Loaf!

It made it feel like we were celebrating all week long instead of just one day. This became an instant tradition! The girls have so much fun choosing their meals and they start thinking about the meals that they will request months in advance now.

Plus it is a lot cheaper to just make special meals instead of having a big party, and it will take care of your meal planning for the week!

13. Let Them Be King or Queen for the Day

If you are on a really tight budget but want to make your child’s birthday special, let them be King or Queen for the day.

Let them choose what they want to eat for breakfast, lunch, and dinner. And let them pick the special activities for the day (if they have expensive taste, give them a list of approved activities!).

If your child is someone who needs time to think things through, give them the options in advance so that they can think it over.

Fun ideas you could include would be going to the park, going on a family bike ride, hanging out in a hammock and reading together, painting nails together, going to the library, making a fort in the living room, baking a cake together, doing crafts, the sky’s the limit!

How to Have a Simple Stress-Free Birthday Party When You're On a Tight Budget

14. Set Realistic Expectations

If your child is used to having lavish birthday parties with tons of presents, sit down with them before the budget-friendly birthday.

Let them know that this year will be a little different.

Depending on their age, and your comfort discussing your family finances with your children, explain to them why you are cutting back on birthday parties for now.

Let them know that you are working toward paying off your debt, sticking with your budget, or if you need to save your money so that you can go on a fun family vacation together!

Children are usually much more understanding than we give them credit for.

Ready to Stop Feeling Stressed About Finances?

Then check out Master Your Money!

In Master Your Money, you will learn how to 

  • Calculate Your Net Income
  • Track Your Spending
  • Calculate Your Monthly Expenses
  • Determine Your Fixed & Flexible Expenses
  • Set Up a Budget
  • Pay Off Debt
  • Create Savings Accounts
  • Donate to Charity

Master Your Money walks you through exactly how to take charge of your finances so that you can afford to live the life of your dreams!

Plus you will receive the Money Mastery Workbook and Spreadsheet and email support from me anytime you have questions.

I hope to see you inside the course!

(Or if you are more of a do-it-yourself kind of gal, you can check out my DIY Master Your Money Resources!)

Want 7 Extra Hours Every Week? Grab the Streamline Your Home Quick-Start Guide!

Want to Get 7 Extra Hours in Your Week?

Then check out Simply Streamlined!

In Simply Streamlined, you will learn how to 

  • Declutter Your Home
  • Put Effective Routines in Place
  • Create a Set-It-and-Forget-It Meal Plan
  • Get Your Finances Under Control

Simply Streamlined walks you through exactly how to Completely Streamline Your Home in just 15 Minutes a Day!

Plus you will receive

  • Cluttered to Calm Lessons, Workbooks, and Spreadsheets
  • Put Your Home on Autopilot Lessons, Workbooks, and Spreadsheets
  • Set-It-and-Forget-It Lessons, Workbooks, and Spreadsheets
  • Master Your Money Lessons, Workbooks, and Spreadsheets
  • AND Weekly Live Coaching Calls!

I hope to see you inside the program!

(Or if you are more of a do-it-yourself kind of gal, you can check out my DIY Streamlining Resources!)

You May Also Enjoy

The Best Intentional Gift Ideas for Kids, How to Bake Bread With Your Kiddos, and How to Hike With Your Kids.

See you on the next one! Kassy
How to Create a Birthday Party for your Kids when you are Broke
14 Tips for Creating an Awesome Birthday Party on a Small Budget
How we Have our Kid's Birthday Parties on a Tight Budget
How to Have a Kid's Birthday Party on a Shoestring Budget
How to Start Budgeting: a Beginner’s Guide to Creating a Budget, Cutting Costs, and Saving Money

How to Start Budgeting: a Beginner’s Guide to Creating a Budget, Cutting Costs, and Saving Money

Ugh. Budgeting.

How to Start Budgeting When You're on a Small Income: Plus a Free Beginner's Budgeting Checklist

The last thing you really want to spend time doing or thinking about, right?

We all know we should do it, but it’s usually the last thing we get around to.

It’s like the vitamins of home management.

Here’s the thing though, budgeting can actually be fun!

I feel like you don’t believe me, so let me show you:

Wouldn’t it be fun if you could afford to take that trip you’ve been dreaming about? 

Wouldn’t it be fun if you told your money where to go instead of credit card debt bossing you around? 

And wouldn’t it be fun if at Christmas time, you already had the money saved up for gifts instead of digging yourself into a financial hole?

Budgeting can make all that happen!

Yes, it takes some time, some effort, and some grit to stick with it.

No, it isn’t easy at first.

But when you pay off that first debt, when your savings account starts growing, and when you stop spending money on things that you don’t need, it is all worth it!

Before we get into the HOW of building a budget, let’s take a quick look at WHY you should start a budget, in case you still aren’t convinced.

Or if you’re ready to get started, just skip the next section. 🙂

And if you prefer to watch your content instead of read it, here is the video that goes with this post:

Why You Should Start a Budget

1) You Will Get Your Spending Under Control

If you spend more than you make each month and money seems to magically disappear between your paychecks, starting (and sticking with!) a budget will help! 

When you have your money allocated to where it needs to go, you know exactly how much money you have left over to play with each month.

Basically, it keeps the money from getting confused as to whether it is fun money or serious money

Creating a budget will help you see exactly what you are spending your money on… and see if you need to make any adjustments. 

Having Netflix, Hulu, and Amazon Prime may be nice, but would it be better if you could afford better gifts at Christmas time if you only subscribed to one entertainment hub?

2) You Will Reach Your Goals Faster

Do you have a trip you want to go on? A car you want to purchase or pay off? Are you thinking of purchasing a house and need a down payment?

Start that budget!

By laying out exactly how much money you need to save and dividing it up into nice manageable chunks that you can save each month, you will reach your goals more quickly.

3) You Will Save More Money

Putting your money toward an emergency savings account or retirement can be a challenge when you are budgeting based on your feelings every month. 

Going out to eat will always win over putting that money in an account when you don’t have clearly defined goals.

9 Reasons you should start a budget today! Plus a Free Beginners Budgeting Checklist

But when you write down your goals on paper, and auto-draft directly into your savings account(s), you will start to build a nest egg for when you need it.

4) You Can Stop Living Paycheck to Paycheck

Living paycheck to paycheck is frustrating and stressful. 

No one enjoys living that way without any financial cushion.

Knowing exactly where your money should go each month will give you the courage to say, ‘no’ to things that aren’t in the budget so that you can begin to build in some wiggle-room.

5) You Can Be Flexible from Time to Time

Sometimes, the kids will need a whole new wardrobe, and usually they all need it at the same time.

If you have a budget though, it’s not a problem!

Just eat cheaper foods for a month, or cancel some subscriptions, or put a little bit less into the college savings accounts.

If you know how much money goes everywhere each month, you can easily move things around temporarily if need be, without completely throwing things off track.

6) You Can Get Back in the Driver Seat

Sometimes it can feel like your finances are in control of you, especially if you are in debt. 

By creating a budget, you are back in control.

You can allocate where every bit of money is going and know when your debt will be paid off if you stay on track.

7) Having a Budget Keeps You Accountable

Building a budget, is like having a financially savvy friend who will say, “do you really need to buy that cart-full of things at Target? Or have you already spent your shopping budget for the month?”

It may not be what you want to hear, but you know that your friend is right.

Sometimes it’s just what you need to kick your finances into gear.

8) Having a Budget Simplifies Your Finances

Even though it seems more complicated at first, once you get the hang of it, it will make your finances simple.

Especially if you use my simple percentages trick that I talk about in this post, you will be amazed by how easily you can keep track of your money.

You will know where every dollar is going and never wonder why your credit card bill is so high again.

9) Money Will No Longer Get “Lost”

Have you ever put money in your bank account and had it “disappear” less than a month later? You aren’t even quite sure what you spent the $100 you got for your birthday on, but it must have been something, right?

Having a budget and sticking with it will keep you from spending your birthday money at the Taco Bell drive-through and enable you to use it for something fantastic. (That’s never happened to me by the way…)

How to Create a Budget:

Now that we all understand why creating a budget is so important, let’s go through the simple steps for creating a budget!

1) Grab Your Gear

We are kind of spreadsheet junkies. We have a spreadsheet for everything… from every board game that we own, to our Christmas card address list.

So for us, it’s a no-brainer to grab our laptops if we are looking at our budget. We like to use Microsoft Excel for all of our spreadsheets, and I built a Money Mastery Google Spreadsheet to get you started on the right foot if you’ve never used spreadsheets before.

The advantage of using a spreadsheet for your budget is that you can easily change the numbers if anything changes without having to completely re-do the math. 

If you use the formulas, the spreadsheet does the math for you!

But if paper and pen is more your style, it is also a great way to build a budget. You can grab my Money Mastery Printable Workbook if you would like an easy plug-and-play template.

2) Determine Your Reliable Monthly Income

Take your income after taxes, your spouse’s income after taxes, and any other consistent incomes that you have (after taxes!) and add them all together.

The sum of the net incomes is the amount of money you have at your disposal every month.

Notice that we aren’t looking at every bit of money that you *might* make in a month.

What you want to know is what will absolutely be at your disposal.

Be very sure that you are not looking at your Gross Income. That number is quite different than the cash flow you will have available after all of your deductions are taken out.

How to Start Saving More Money By Starting a Budget

3) Write Down All of Your Monthly Expenses

Grab your Workbook or Spreadsheet and write down every bit of money that you spend in a month. 

Jot down anything you can think of from how much you spend on eating out, to your mortgage or rent payments, to your Netflix subscription.

If you get stumped, your credit card or bank statements might offer some inspiration.

Be specific. 

Then add everything in each category together and write it down. (You’ll find a list of categories in the Workbook and Spreadsheet.)

How to Budget for Food

The food category can be tricky for some people because their eating habits vary greatly from week to week, or because they typically eat out and they want to start eating at home more to save money.

If you fall into either of those categories, you have three options:

1. You can track how much you spend on food for a month before setting your food budget in stone.

2. You can make your best guess and adjust after the first couple of months if you need to.

3. You can commit to eating more meals at home and begin meal planning. (Check out my post on How to Begin Meal Planning When You Don’t Know Where to Start if this is new for you!)

UPDATED in 2021 after the coronavirus:

I used to make a specific recommendation for how much money you should spend on your budget ($100 per person/per month).

BUT in this video I talk about how food costs have gone up since COVID. I now think that you should try to set your food budget as low as you can while still making tasty, healthy meals for your family.

Adjust the number according to your geographic location (I know some places like Hawaii are much more expensive to buy groceries), and your eating preferences (or dietary restrictions). But don’t be afraid to challenge yourself with spending less money!

When you are all done writing down everything you spend in a month, add up all your expenses. Are your expenses 70% or less of your net income?

(If you aren’t sure what 70% of your net income would be, simply multiply .7 by the total net income that you came up with in Step 2. Then compare your answer with the total expenses.) 

If you are spending more than 70% of your net income, you are probably going to need to cut some costs in order to be able to save money or pay off debt depending on your goals for creating this budget. We’ll, take a closer look at this later.

(For more information about why I suggest spending only 70% or less of your net income on expenses, check out my post The Secret to Sticking With Your Budget from the Start.)

4) Divide Necessary from Unnecessary Costs

Why divide your expenses into two categories? I thought you’d never ask!

After doing all the math. you may find that you don’t have the money to put into savings that you would like to. Or you may be looking to pay off your debt quickly but aren’t sure how you will do that. Or you may want to save for a trip. Or you may find that you are spending more than you make and are getting deeper into debt…

If that is the case for you, then you will probably be looking at cutting some expenses (after you track your spending for a month in Step 8). Dividing your monthly expenses into these two categories will make it easier to see what you can live without.

Necessary Expenses

Everything you put in this category is a non-negotiable expense for your family. You won’t be able to minimize or cut out these expenses without moving or drastically changing your eating habits.

Common things that you may have in this category are Rent/Mortgage, Utilities, Debt Payment, Cell Phone Plan, Groceries, Car Payments, Car Insurance, Home Insurance, Health Insurance, Life Insurance, and Gas.

Unnecessary Expenses

Now jot down everything that is a typical monthly expense that you can either spend less on or cut out completely if you need to.

This is the list that you can work from if you realize that you need to make some adjustments.

It’s hard to minimize necessary expenses (although not impossible if you are willing to put in some work), but unnecessary costs can easily be shrunk, skipped for a month or two, or completely eliminated if you are in a less than ideal financial situation.

Things that could possibly go in this category: Clothes Shopping (most of us don’t need as much as we think we do), Miscellaneous Shopping, Entertainment, Going out to eat, Television/Cable/Dish, Netflix, Hulu, Amazon Prime Subscriptions (even though Amazon wants us to feel like Prime is a necessity).

You’ll be surprised how easily you can live without so many of these things!

The Ultimate Step by Step Guide for Building a Budget. How to Start a Budget from Square One: Plus a Free Beginner's Budgeting Checklist

5) Allocate Your Savings/Debt Payments

Why is this section about Savings and Debt Payment together? Because if you have debt (other than a mortgage), pay it off before you start putting money into savings.

Once the debt is paid off, you use the money that you had been putting toward your payments and start putting it into your savings accounts.

If you try to save while you are paying off debt, you won’t make progress with either of them very quickly and will probably get discouraged before you are done. 

But if you pay off your debt first, you are able to put more money toward your debt and pay it off faster. Then your savings will grow more quickly when you can put all of that money toward savings.

For this step, you should decide what percentage of your income you would like to save or put toward paying off your debt.

If you aren’t sure, read How to Use Percentages to Build Your Budget for all the details.

In our budget, this category accounts for 20% of our net income. When we had/have debt, we use this chunk of money to pay it off. When we don’t have debt, we save 20% of our income.

What To Do With Savings:

Instead of dumping your savings into one giant catch-all savings account, I suggest dividing it up among several different accounts.

The main reason for this is that it is much easier to track the money we have saved for different items or experiences without dipping into our emergency fund.

If you decide to have several accounts for your savings, I recommend using a separate tab in your spreadsheet to keep everything straight.

Here are some savings accounts that we have and I would recommend to anyone that they apply to:

Emergency Savings Accounts: This account is for emergencies such as a job loss or a medical need.  Don’t touch it unless you are in a crisis. It is best if you can pretend this account doesn’t even exist. 

Set up auto-drafting for this account on the day that you know you get paid.

It is a good idea to have 6-12 months of living expenses stored in this account. If you are just starting out and don’t have a savings account yet, put the entire 20% of your income into this account until you could live off of this account for at least 6 months if you needed to.

Big Goal Account: If you know that you plan on purchasing a house, boat, car, going on a trip, or paying for a wedding; it is a great idea to save money ahead of time.

Putting all your savings into one account can make saving for a goal messy. By having a separate account, you know exactly how far you are from your goal.

If you have more than one goal that you are saving for at a time, open two accounts! Opening accounts won’t hurt your credit or cost you anything as long as you maintain the required minimum balance.

Investments: It is a good idea to put money into investment accounts for retirement needs. Often long-term accounts will have higher interest rates than your run-of-the-mill savings accounts.

We use Edward Jones to keep track of putting our money in the highest yielding investments so that we don’t have to watch the market so closely.

Sinking Funds: These accounts are what we use to save for expected hits to our bank account. For us, this is mainly our cars and insurance.

We use Progressive Insurance and with them, we can save money by paying yearly for our insurances instead of every month. 

To avoid a financial surprise once a year, we divide the total amount we need to pay into 12 smaller payments. Each month, we put 1/12 of the money into an account. When our premium is due, we have the cash available.

We also use our sinking fund for car repairs and oil changes. Ross averages out what we need for these each year and puts the money away to take care of the vehicles… plus a little extra since car repairs can come at a premium and usually happen when you least expect them!

College Savings Accounts: Each month we put a little money into two college savings accounts. One for each of our girls. Any time Ross gets a bonus from work, we also put in a little extra.

Most likely the accounts won’t completely pay for their college educations, but it will give them a nice start when the time comes. 

Considering the time value of money, it is best to start these accounts as early as possible when you have children.

The accounts that we use for our girls are for education only. The upside of that is that they have a higher interest rate than a regular savings account. The downside is that they can only be used for trade schools or college. 

So if neither of our girls decides to go to college, we will have to transfer the money to someone else who wants to use it for education. This is worth it to us because we figure that worst-case scenario we could give it to a niece or nephew.

If you want more ideas for setting up different savings accounts, check out this post!

6) Determine Your Giving

You can obviously skip this piece of the puzzle if charitable giving doesn’t align with your personal values. 

But if you’ve never done it before, I encourage you to give it a try!

It’s ok to start small here, even donating $25 a month to a cause can go a long way. Just eat at home once or twice more per month instead of eating out and it will cover the cost.

Even if you aren’t part of a church, it never hurts to give back to your community. Find a cause or a charity that you are passionate about. 

I’ve never heard of anyone who regretted paying it forward!

If you really can’t afford it, volunteer once a month at a homeless shelter or soup kitchen in your area! 

There are a million ways to give back if you get creative. 

Plus volunteering will teach your children the importance of helping those less fortunate than yourself and treating everyone with respect.

In our house, we tithe 10% of our income to our church. (See this post for more information on recommended budgeting percentages.) 

Additionally, we like to donate to ADRA which supports people who live in less fortunate areas of the world or who are in difficult situations. 

We like to get the kids involved in choosing how we donate and they often like to pitch in by asking for donations for Christmas and birthdays. This year we bought a goat for a family who needed food and a way to make money.

The Easy Way to Start a Budget and Take Control of Your Money: Get Started With the Ultimate Beginner's Budgeting Checklist

7) Create a Calendar for Your Budget

Sit down with your calendar (I love this Amy Knapp Big Grid Calendar) and write in your paydays. Now, choose which payday you will have your expenses auto-drafted.

For example, We have our mortgage payment taken out on the first of the month with the first paycheck. Because of that, we have most of our other expenses drafted after the other paycheck hits our account. 

That way we have plenty left over for groceries and gas in between paycheck one and paycheck two.

After you have your expenses divided up, decide when you want your savings or debt payments auto-drafted. You may want to do this all at once, or a little bit from each paycheck. 

Having this money taken out automatically tricks your mind into forgetting about it!

The other thing you should write down on your calendar is your weekly grocery budget. 

Divide your monthly grocery budget by 4 and write it down. It is much easier to stay under budget when you know how much money you have to spend each week at the grocery store, instead of trying to remember the monthly amount.

8) Track Your Spending

Alright, now that you know where you want your money to go each month, it’s time to find out where it is actually going each month.

You can use the spending tracker in my Money Mastery Workbook or Spreadsheet, or you can do it electronically by using Mint.com. Mint.com is a free spending tracker that we love using. 

It pulls information directly from your accounts so there is no guesswork.

The only issue that we have is occasionally a purchase will get categorized incorrectly, but you can easily go back and adjust it.

And, using Mint.com, you can create as many categories as you need to!

9) Evaluate and Cut Costs

How did you do with tracking your spending? Did you stay within your budget?

If the answer is yes, you’re done! Stick with your budget and you’ll be on your way to hitting your financial goals.

If not, then you should look at cutting costs. Grab the worksheet with your Unnecessary Expenses on it, and start cutting costs wherever you can.

If you cut something out of your budget, it doesn’t mean you can never add it back in. But for now, it will help your budget a lot.

Maybe you just need to limit yourself to only eating out on the weekends, or choosing between Netflix or HULU or Amazon Prime instead of all three.

I have a feeling you’ll be surprised how little you miss some of the things that you thought you couldn’t live without!

If you need additional inspiration, check out my post 10 Ways to Save Money When You’re Living Paycheck to Paycheck.

10) Track Again

If you needed to cut some costs, track your spending for another month. Then see if the initial things that you cut out of your budget were enough for you to meet your goals.

If you are still spending too much, keep repeating steps 8 and 9 until you get where you want to be!

If you find yourself struggling to stick to your budget, you may want to use a cash system until you have your spending under control. 

But I don’t recommend using a cash system in the long run because you can build credit and make money by using credit cards… if you use them wisely.

Using a cash system is a great way to reset your spending if you need it, though!

11) Stay On Top of It

Once you have honed in on your perfect budget, don’t just forget about it. Check your budget regularly against your bank accounts to make sure you aren’t overlooking any spending.

We love using Mint.com to stay on top of our money. It saves lots of time, and it’s free!

I recommend checking at least once a week, but it doesn’t hurt to check daily while you are getting into the habit. Or you can be super-cool like Ross and check multiple times a day from now until forever.

I always play a game with myself whenever I buy anything other than groceries to see how long it will be before I get a text from him confirming that I did indeed purchase whatever it was from wherever it was.

It used to annoy me until I realized that’s one of the reasons we have been able to live debt free for so long… and it was a helpful habit to have when someone stole our credit cards…but that’s a whole other story!

The important thing to remember is to check frequently, whatever frequently means to you!

The Ultimate Guide to Creating a Budget for Beginners Living Paycheck to Paycheck: Plus a Free Beginner's Budgeting Checklist

Here’s a quick re-cap of How to Set Up a Budget:

  1. Grab Your Gear: Use a spreadsheet, notebook or use my Money Mastery Workbook and Worksheet.
  2. Determine Your Monthly Net Income: Add all reliable monthly net incomes together.
  3. Write Down All Monthly Expenses: Write down everything you spend money on in a month from your debt payment to buying toothpaste.
  4. Divide Necessary From Unnecessary Costs: In one column write down everything you can’t live without, in the other, write everything that you might be able to adjust if you need to.
  5. Allocate Your Savings/Debt Payments:  Put 20% of your Net Income toward paying off your debt first. After your debt is paid off, build up your savings accounts. 
  6. Determine Your Giving: Decide where and what amount you will give to charity.
  7. Create a Calendar for Your Budget: Write down when you get your paychecks. Then determine when your expenses/savings/debt payments/charitable giving will auto-draft.
  8. Track Your Spending: Write down everything you spend for a month.
  9. Evaluate and Cut Costs: How did you do with sticking to your budget?
  10. Track Again: If at first you don’t succeed, try, try again.
  11. Stick With It: You can do this!

Good luck!

You May Also Enjoy…

How We Paid Off $20,000 in debt in 18 Months!

How to Organize Your Finances With 7 Bank Accounts.

37 Ways to Save Money on Groceries if you aren’t sure how to get your grocery budget under control.

10 Ways to Save Money When You’re Living Paycheck to Paycheck if you need some ideas for how to cut costs.

If you want to be sure that you can stick with this budget from the start, check out The Biggest Secret to Sticking With Your Budget.

Does worrying about what other people will think of you if you start living more frugally keep tripping you up? Check out 7 Powerful Mindsets for Low-Income Families.

Teach your children how to budget with The {Simplest} Budgeting Method for Kids.

You can read about our journey learning to live on one income here: How We Became a Single Income Family.

Want 7 Extra Hours Every Week? Grab the Streamline Your Home Quick-Start Guide!

Ready to Stop Feeling Stressed About Finances?

Then check out Master Your Money!

In Master Your Money, you will learn how to 

  • Calculate Your Net Income
  • Track Your Spending
  • Calculate Your Monthly Expenses
  • Determine Your Fixed & Flexible Expenses
  • Set Up a Budget
  • Pay Off Debt
  • Create Savings Accounts
  • And More!

Master Your Money walks you through exactly how to take charge of your finances so you can afford to live the life of your dreams!

Plus you will receive the Money Mastery Workbook and Spreadsheet and email support from me anytime you have questions.

I hope to see you inside the course!

(Or if you are more of a do-it-yourself kind of gal, you can check out my DIY Master Your Money Resources!)

See you on the next one! Kassy
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