Build a Budget in 15 Minutes

Build a Basic Budget Quickly

Whether you run a Fortune 500 company or a family, budgeting is the foundation of your financial success. A budget helps you understand how you spend your money, and place your high priorities at the top of your spending list.

Budgeting for Beginners

Even a very basic budget can provide incredible value for consumers. While more complex budgets provide more control over your money, having a simple budget will still provide insight into how you can manage your money to achieve your goals. Unfortunately, most families don’t have nor follow a budget.

Why Most Don’t Budget

I have taught Personal Finance college courses for over a decade to 'students' ranging from the typical college student to doctors and lawyers wanting to improve their finances. In that time, I have noticed there are two main reasons people don’t budget.

First, they don’t want to be forced to sacrifice; and second, budgeting takes too much time. If you fall into either of these two categories, this article will solve those problems, making it easy for you to maintain a basic budget.

Myth: Budgeting Forces You To Sacrifice

Many don’t budget because they don’t want to sacrifice any of their spending. My guess, though, is at the end of the month you aren’t worried about all the extra money in your checking account and stressing over how you will possibly spend the money.

Instead, there are likely a list of things you would like to do if you could afford it. If you have ever uttered the phrase, “I wish I could _______, but I don’t have the money” then you are already sacrificing something.

Budgets don’t force you to sacrifice. Budgets put you in charge of what you want to sacrifice and keep you from sacrificing what you don’t want to. I don’t even like calling budgets ‘budgets.’ I like calling them spending plans, because a budget should be your plan for how to spend your money.

Myth: Budgeting Take A Lot of Time

Unfortunately, the type of complex budgeting financial advisers do as part of a financial plan does take a lot of time to set up and manage. But you don’t need to start off with a complex budget. The Purposeful Finance Basic Budget (PFB Budget) is a quick-start version of a budget which will provide you with many of the benefits without spending all the time.

Once you’ve gathered your checking and credit card statements, you can likely complete your budget in about 15 minutes. A PFB Budget is a great starter budget for those beginning their journey toward financial independence.

How to Create a Budget

The Purposeful Finance Basic Budget provides you with a quick estimate of how you spend your money, then helps you direct money in a purposeful way. The budget won’t provide you with a granular plan for your money and how you spend it, but it will begin to give you control of your spending. More importantly, the budget will make sure you budget with a purpose; your priorities being the first items funded.

Step 0 – Gather Your Information and a Budgeting Worksheet

Before you start, you want to get together all the tools you'll need to put your budget together fast. Nothing wastes more time than having to stop mid-way through a project to get something you're missing.

Your checking and credit card statements for the past month will provide you with the majority of what you need. Having additional statements for the past year handy will also help. Your most recent pay stubs can also help, as well as a copy of your tax return. 

Next, get a budgeting tool such as a worksheet to help you organize the information. Purposeful Finance has a budgeting worksheet which is specifically designed to help you follow the rest of the steps. You can take the Purposeful Finance Budget Challenge and get a free budget worksheet to help you budget.

Step 1 – Your Income

The first step in building your budget is to list your basic income. Your pay stubs and checking account statements should provide your take-home pay, but not all your pay is basic income. Your basic income is the money you can count on every single month. It does not include overtime, bonuses, or other incentive pay. If you have a job where your income varies, such as food service or sales, list off the income you earn in your lowest-earning month.

By basing your budget on the worst possible income scenario, you’ll be guaranteed to be able to keep to the budget. If you were to list income you earn with overtime or bonuses, your budget will be worthless in the months where you don’t earn the extra income.

Later in the process we'll add back in the overtime, bonuses, and high income months. It's a lot more fun to figure out what to spend the extra money on rather than trying to figure out what to cut in lean months.

Step 2 – Your Fixed Costs

The next step is to list off the fixed costs in your life. Fixed costs are monthly expenses you have to pay on in order to maintain your life. “Maintain your life” means if you do not pay the expense; your health will be negatively impacted, you will lose your job (or other income), or you will break the law.  

Fixed costs include things like your rent or mortgage, utility bills, grocery bills (not dining out), car payments, and insurances. Review your credit card and checking statements to find all the expenses you can categorize as a fixed cost. As you list them on the budget, cross them off on your statements.

Make sure to skim through old account statements and identify expenses which don't show up in the last month. Car insurance premiums, buying eyeglasses, or replacing tires are all fixed costs which aren't paid each month. Identify these and add them to your list.

Once you’ve listed all of your fixed costs, add up the total and deduct it from your income. This will provide you with your discretionary income.

Step 3 – Optional Obligated Costs

Your Optional Obligated Costs are those costs you have to pay every month, only because you’ve chosen to ‘sign up’ for them. These are expenses like your gym membership, your cable bill, and your cell phone. Any expense on your statements you pay every month but you can live without, list in this category.

There is nothing wrong with having any of these expenses, but to accomplish other goals these are often the best places to look to free up money in your budget. Cutting your monthly cable bill could free up enough for two round-trip tickets to a Mexican resort. It is up to you whether you would prefer cable or the plane tickets, and neither choice is wrong.

Optional Obligated Costs will also include your minimum payments on your credit cards if you carry a balance. Here you'll also list any other loan payments not already listed in Step 2. Although you can’t ‘cancel’ loan payments without a bankruptcy, you can choose to accelerate paying them off, which would remove the cost from your budget.

Again, review your account statements and cross off expenses as you record them in your budget. Also review older statements and identify any Optional Obligated Costs which don't get charged monthly, such as annual membership dues or subscriptions. 

Add up your optional obligated costs and deduct them from your discretionary income.

Step 4 – Variable Costs

The last step involving your account statements is to list your variable expenses. These are costs which either vary month by month or which you don’t pay every month. Variable Costs will likely include dining out, entertainment, clothing, and other expenses which haven't been crossed off yet.

You should also add any other expenses you can think of which are not present on the account statements. These could be expenses like vacations, new clothes, or gifts during the holidays. If you spend $600 per year on holiday gifts, break that down to $50 per month.

List the expenses in the budget as you cross them off on your statements. At this point all of your credit card charges and checking account payments should be crossed off on your statements. If anything is left, categorize it in the most appropriate category.

As you record Variable Costs, estimate how much you spend each month add 10%. Unfortunately, these expenses are not consistent, so you cannot count on your monthly statement or memory to get an accurate cost. It is much more likely you will underestimate the true cost than overestimate.

Add up the Variable Costs and deduct the total from the income you have left over from Step 3. If you have a negative number, that is OK, you’ll fix it later when you build your budget. You have just identified you may be overspending and why you might be going into debt.

Step 5 – Your Financial Goals & Wishes

Finally, add in the financial goals you want to accomplish in your financial plan, such as investing for retirement, taking a vacation, or saving to buy a home. As you list the goals, enter the amount you want to save each year toward the goal, and a monthly amount you would need to 'spend' in order to accomplish each goal. If you don’t know how much you would need to spend, you can learn how to calculate the cost of your financial goals.

Add up the cost of your goals and enter the total under the Goals section. You now have the amount of money you have to free up from Steps 2-4 in order to accomplish your goals!

Step 6 – Prioritize Your Goals

Once you’ve listed all of your expenses and your goals, re-build your budget based on your priorities. That is, make your budget reflect how you want to spend your money rather than how you currently spend money.

Don’t Ignore Necessities

Begin budgeting your fixed costs by reviewing if you can reduce any of the costs. These are the most difficult to change, but you do have some control over fixed costs. You could look at downsizing your home to reduce your housing expense, reduce your grocery spending by cutting ice-cream or processed food, or sell a car and buy a cheaper option with better gas mileage/insurance rates.

If you do find ways to reduce any fixed costs, enter the new expense and recalculate your discretionary income.

Focus on Priorities

Next, look at the rest of the expenses in Optional Obligated Costs, Variable Costs, and Financial Goals as a whole. Make sure to include any goals you couldn’t afford before when you do this prioritization.

Don’t, simply go down the expenses in the order you originally wrote them. Instead, review everything on the list and choose the one which is most important to you. Whichever is your top priority, write it in your new budget along with the cost. Then identify the next most important expense and repeat the process. You will discover that some things you never could afford end up high on the list, and there are some things you currently spending money on which you don't really care about.

As you enter each expense according to your priorities, deduct the cost from your discretionary income. You will keep adding the next priority to your budget until you run out of money.

Anything unfunded in your budget should be eliminated from your spending; not because the expense is irresponsible, but because you have other priorities you care about more.

Step 7 –Add Back in Extra Income

If you were sad to see some of your low priorities go, there is good news! Remember, your income number was based on your basic income, not including overtime nor bonuses. You still have the opportunity to fund some of the expenses you ‘cut’ when you earn overtime or get a bonus.

As you earn extra money in a month, you have a list of things which you can put that money toward. One month you might treat yourself to something special, another month you might put the money toward a major goal. Each time you have extra money, you have a list of items like this one:

  • Treat ourselves to a fancy dinner because we cut those out.
  • Put extra money into our retirement plan or pay down credit card debt.
  • Throw some extra money into a savings account go on that international trip we can't afford. 
  • Stash extra money into our family vacation fund to take a longer vacation or take it sooner.

Now, instead of relying on extra pay to make ends meet, you’ll be able to use it to treat yourself to something special. 

Take the Budget Challenge

Challenge yourself to build a budget you'll actually stick to. It takes just 15 minutes to build a budget based on your priorities and how you want to spend your money.  Visit our budget challenge page and commit to getting in the best financial shape of your life.

Joshua Escalante Troesh is a tenured professor of Business at El Camino College and the founder of Purposeful Finance. He is also the owner of Purposeful Strategic Partners, a Registered Investment Advisory firm. He can be reached for comment at