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    Personal finance 101: How to create a budget for your lifestyle

    “A budget is telling your money where to go instead of wondering where it went.” 

    These famous words spoken by Dave Ramsey speak to the importance of a budget. A budget gives you control over your finances. Did you know, on average, new budgeters save $600 in their first two months and over $6,000 in their first year. To find out how you can start budgeting, read below!


    Step 1: Get to know your income and expenses

    A lot of us avoid looking at our real numbers when it comes to personal finance. This is because if we haven’t been doing so regularly, it can be scary to admit you’ve spent $200 in one month on takeout coffee or tacos alone. Sure, we’re supporting the local economy – but remember to take care of your own financial future, too. 

    The first step in proper budgeting is understanding your numbers. To start this process, you’ll need to figure out your monthly income sources (e.g., wages from your job, rental income, etc.).

    Next, take a couple of hours and review your past three to six months of bank statements to understand how much you typically spend. This way, you can find an average and work with your discretionary spending to balance what you can afford.

    Now that you know how much money is coming in vs going out every month, we can move to step 2.


    Step 2: Set realistic goals

    A lot of personal finance is comparing yourself to your peers and trying to keep up with them to spend money and live a fun life. Sometimes we need to remember that the best way to afford that lifestyle is being honest with yourself so you can get your finances on track first. 

    Setting realistic goals should be broken into two categories: short-term and long-term. An example of a short-term goal is a family vacation, while a long-term goal could be paying off your home mortgage.

    Now that you have your goals in place, let’s determine the budgeting plan you’reyou’ll use. 


    Step 3: Choose a budget that works for you

    One thing that’s important to note is that there are no one-size-fits-all solutions for your money. The good news is there are different types of budgets to choose from, so that you can find a budget that fits your needs and ideal lifestyle. 

    The best way to approach budgeting is to consider how hands-on you’d like to be when it comes to your money. If you want to know where every dollar goes each month, you might need a more structured budget. If you hate the idea of budgeting, but you still want to take control of your finances, there are ways to budget with minimal effort. 

    And if you’d like to know where your money is going without having to worry about every single spreadsheet line, you might want something in between. 


    Option 1: Cash-based budgeting

    Cash-based budgeting is a great way to control your spending habits if you struggle to save money. Using this budgeting method, you split your income into envelopes each month and put enough cash inside each one to cover that expense. 

    Once the cash is gone, you can only spend money in that category in the following month. You can also try this budgeting method digitally by setting up separate accounts at your bank or using a spending card that you reload, like Brightside. 


    Option 2: A pay-yourself-first budget

    If creating a budget sounds tedious and doesn’t suit your lifestyle, try the pay-yourself-first budgeting method. Using this method, rather than focusing on what dollar goes where you can prioritize automating your finances. 

    By setting up automatic contributions to pay bills and put them towards your savings, you don’t have to worry about missing any payments. Once you’ve covered your essentials, whatever is left can be put towards variable expenses.


    Option 3: Zero-based budgeting

    Zero-based budgeting means putting every single dollar you earn to work. It’s a hands-on way to approach your budget because, at the end of each month, you’ll have every cent put towards an expense or a savings goal, leaving you to break even at $0. 

    Personal finance apps like You Need a Budget (YNAB) or Mint are great for this style of budgeting because they help track your spending, rather than relying on a spreadsheet. 


    Step 4: Track your progress

    Now that you have selected your budgeting option, the only thing left is to review your actual income and expenses against your budget. Very rarely will these numbers match, and that’s OK. You have to remain flexible while budgeting. 

    Maybe you budgeted for a lower utility bill than what you actually paid. Knowing this new information, you should update your budget for the following months. While this may seem like a lot of work initially, the process continues to get easier as you start getting a better understanding of your expenses. 


    Why you should budget

    It’s more than possible to live life on a budget but still enjoy the things you love. By prioritizing things that make you happy and letting go of things you don’t necessarily need, you can better manage your financial life to the fullest. 

    Budgeting is all about finding a way to make your money work for you instead of the opposite. Knowing your daily spending habits and finding a budgeting method that doesn’t make you scream, you’ll quickly realize that being financially responsible isn’t as dull as it sounds. Especially when you can go out for dinner and drinks knowing that your debit card won’t come back shouting “insufficient funds.”

    Good luck! Remember to give yourself at least one month to work through a budget before you decide it’s not for you.


    As your small business accountant, we can provide support with your personal taxes and your finances. Our team is here to help provide accounting, bookkeeping and tax services and set you up for small business success.

    Find more Strategic Advisory topics relevant to you and your small business. 

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