10 Power Steps to Creating a Killer Personal Budget – Part 1

by Shawn

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You're On Your Way to Budgeting Success!

You! On Your Way to Budgeting Success

Have you ever thought about using a personal budget to achieve your financial goals, and not known the steps to create one?  Some folks actually have a general idea of what to do, but, stop short of actually executing the steps. Maybe you started a budget at one point, but found it was difficult to keep up the work required to maintain it.

In this post, I want to guide you through the steps to build a personal budget in 10 very easy, but, powerful steps. I want to encourage you to find your internal motivation to move higher in your financial life. Begin by creating a plan to guide your spending. That’s just what a budget is.

In an earlier two-part series post, I shared 5 Budget Tips to Build Discipline into Your Spending. The word “discipline” can be intimidating, but, your own motivation and self-discipline will take you a very long way toward achieving your best financial life, the one that the Lord has designed especially for you. In Ephesians 2:10 [AMP], the scripture says the Lord planned in advance for us to be able to successfully do “good works”, like effectively manage our personal budget, and live the “good life”!

For we are God’s [own] handiwork (His workmanship), recreated in Christ Jesus, [born anew] that we may do those good works which God predestined (planned beforehand) for us [taking paths which He prepared ahead of time], that we should walk in them [living the good life which He prearranged and made ready for us to live].

As you use your personal budget, you will find that maintaining your drive and motivation becomes easier. Motivation is integral to your budgeting success.  Now, let’s go over the specific steps you will need to create and successfully use a personal budget.

10 Power Steps to Creating a Killer Personal Budget
So, what are the 10 Power Steps to Creating a Killer Personal Budget? Let’s start with the most critical one: your motivation.

1. Find Your Motivation

Your Motivation Bridges the Gap

Your Motivation Bridges the Gap Between You and Your Money Goals

Before you even start to create a budget, you must have this. After you finish the last step to create a personal budget, just one thing will sustain you. Your motivation. You have to be motivated by something to consistently use your personal budget to achieve your financial goals. What would motivate you to create and use your budget?

Are you…

  • Sick of being broke?
  • Frustrated not knowing where your money goes?
  • Disgusted that undisciplined spending has delayed attaining your financial goals?
  • Ready for a “doable” solution now?
  • Ready to take back control?

Each of these are motivating factors unto themselves. Think of what would motivate you… You’ll need to apply the force of that resolve to maintain consistency. As you find your motivation, you will need to develop a very clear picture of your destination, or goal.

2. Identify Your Financial Goals

Your Financial Goals Are Reachable

A financial goal is a specific object you want to obtain, or a state that you want to realize. A Smart Financial Goal is one that is S-Specific, M-Measureable, A-Achievable, R-Realistic, and T-Time-Based.

Some examples of S-M-A-R-T financial goals are to:

  • Payoff a Car Loan by the end of this year
  • Create an 5-month Emergency Fund in 5 months
  • Increase Retirement Saving by 20% starting now
  • Take a Vacation in Tahiti next summer
  • Purchase an rental duplex in 12 months

Pause…Have your bad spending habits kept you from reaching your financial goals? Have you set some achievable goals for you or your family? Take a minute to think of the financial goals you have set for your life. Read further about how creating a budget can help you get to those goals more quickly.

3. Analyze Your Spending

Personal Budget Sample from Vertex42

One of the most useful benefits of crafting a personal budget is developing an understanding of where your money goes.  It’s a very bad feeling indeed to arrive at the end of a pay period, and have no idea where you’ve spent your money. To be broke, and have no idea exactly why.

Power Step#3 involves reviewing your spending. Gather bills from the last 2-3 months. Write down each personal and household expense. Now, divide these expenses into two categories: fixed and varible. You want to divide the predictable spending from the less predicable.

For example, you may know to the penny what you fixed rate mortgage payment will be. You may not be able to predict what your utility bill might be, or your cell phone charges. You will need to chose a reliable, easy-to-use tool for recording your expenses going forward.

Some people use:

  • paper and pencil,
  • an Excel spreadsheet, or perhaps
  • budgeting software like Mint.com or YNAB. (I think I’ll do a later post comparing Mint and YNAB. :-))
Mint is free to use. YNAB has a free trial available, but, does have a cost associated with it. Whichever tool you use, it should be one with which you feel comfortable, because, you use it on an ongoing basis. I actually use both, because I wanted to be able to compare the features on a future post. I really like both of them.
I also found a really cool site for a variety of MS Excel-based budget template spreadsheets. Check it out and see which one suits you. Analyzing your spending is an ongoing process. List your fixed and variable expenses into your choice of  budget tool. For example, see a sample personal budget spreadsheet.
4. Categorize Your Expenses

Spreadsheet After Categories Are Populated

In Power Step#4, you gather all the expense information from Power Step#3 and put it into categories. Let’s say you have a folder full of all your bills from the last 2-3 months. Stack like bills: utilities together, cable bills together, charities and giving together, etc. The objective of this step is to come up with a spending projection for each main category.

Some example categories you can use are:

  • Giving/Charities
  • Savings
  • Mortgage/Rent
  • Food
  • Transportation
  • Utilities
  • Insurance
  • etc.

As you come up with categories, group the spending into these categories. Come up with a subtotal for your categories. For your fixed expenses it’s pretty easy. The number does not change per each period. The timing is even fixed: once per month, or once per quarter, for example. For variable expenses, that is, expenses whose amount changes, and/or timing changes, you will need to estimate an amount for each variable expense. You can try averaging 2-3 months of a variable expense to use in your budget.

In the end, you will have a value for each category. This is important because these are the numbers upon which you will base future spending. Realize that this budget is your new spending plan. As you move through your day, and whip out your VISA check card, or write a check, or spend some cash, you begin to summarize the totals you’ve spent in the each major category. You’ll compare the budget category number to the summary of your on-the-go spending.

Decisions will need to be made, as you move through the day, week, and month:

  • Do I spend, or not spend?
  • Is there an overage in a category?
  • Can I balance an underspend in one category with a projected overspend in another category?

You are much more conscious of spending with a personal budget. You may need to have a small notebook with you to record and summarize spending. YNAB software offers an iPhone app which allows you to record spending as you go.

If you have no plan, you plan to fail. With a flexible personal spending plan, or budget, you have a plan. You have the ability to achieve those much sought after financial goals. Over time, with persistence, you begin to see you control over your finanaces grow. It’s a great feeling!

And, just as you need to keep your eye on the pitch when trying to hit a home-run, you can’t take your eyes off your spending, or off your budget. As soon as you figure you’ve got everything under control, and there’s no need for vigilence, you have a spending overage you can’t recover from. You have to take from savings, or borrow on a credit card to cover at some high interest rate. It’s not fun. Persistence is needed!

Now for Power Step#5.

5. Review Income Sources

Income Sources in Many Currencies

Now that you have a handle on expenses, you need to gather your various income sources. Sources like a job, rental income, investments return, dividends, etc. Whether you work for someone else, or you work for yourself, you should have a salary or income of some kind.

Your salary may be variable or fixed, like expenses. Both the amount and timing of your income can vary. A fixed salary requires no estimating. If your income varies significantly from month to month, you will need to do your best to estimate and project what it will be in each period. It will be helpful for you to extend your budget out 2 or 3 pay periods. You can use an average over that timeframe, or your best guess for each of the 2 to 3 pay periods.

As this post has gotten pretty long, I will split it into a two-part series. I encourage you to get started right away.

Please check out 10 Power Steps to Creating a Killer Personal Budget – Part 2 for the remaining 5 Power Steps. Feel free to leave a comment with questions. I will be glad to help where I can. Also, if you have some tips for us, please share them. You may have come up with some budgeting software, or spreadsheets to recommend.

Also, if you have not already, please add 10TW to your RSS feed listing. Select the “Subscribe to the RSS feed button” at the top of this page.

I look forward to hearing from you.

Image Credit jscreationzs / FreeDigitalPhotos.net

Image Credit – World Currency

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{ 2 comments… read them below or add one }

Sasha June 13, 2011 at 4:46 pm

Thanks a lot for this post! All the steps sound obvious, yet very useful because there is a ready made structure I don’t need to think about. I remember trying Mint some years ago and somehow I’ve concluded that it’s more sutable for the US rather than the European spenders. Did I get it wrong?


Shawn McLeod June 14, 2011 at 2:55 pm

Hi Sasha-

Thanks so much for your comment! It’s my hope you found it simple to follow in spite of the length.

Regarding Mint.com, you are quite right. For now, it has agreements with banks in the U.S. and Canada.

But, I did some quick checking. You might look into the following sites…

UK financial tracking software:



German iPhone and iPad Mobile Banking App:




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