In my previous post, I summarized the most essential rules to solid money management. Budgeting is an essential part of getting your finances straight and get full control over your money. Here’s how to budget to right way for best results.

How Most People Manage Their Money 

You get your paycheck, pay your bills first (ideally), or maybe you happily spend the fresh cash on a shopping spree and then see how you go about the month. Usually to realize that there is still a bit of month left at the end of the money. 

Or maybe you are a rigorous saver. You put aside a fixed amount every month or percentage of your income. 

If you are a really advanced money manager, you may be even tracking your spending. 

I thought I was good with money. I was doing all of the above: tracking my expenses, making extra income, saving and investing. 

However, for quite a while, I was in denial that my thoughtfully crafted excel sheet was not working. I admit, I never really was ‘good with money’ until I started budgeting. 

Yawn. I know. That’s what I thought, too. 

Once you start budgeting, you understand that every penny you earn and spend is your responsibility. It is a tool to help you get control over your money. For me, it was a way to become purposeful with my money and define my money values. I can tell money exactly what I want to do for me. 

The Ugly ‘B’ Word

Before I learned how to rock my budget, I had common misconceptions about it. All associations I had with the “B” word was ‘being on a budget’. Meh. 

I believed budgeting is for: 

• poor people
• low income families
• frugality maniacs / penny hoarders
• control freaks
• nerds
• people who don’t know how to manage their money 

Before I had a (proper) budget, every time I put money aside, I had to pull it out of my savings again at some point. 

I Was Saving Wrong 

How can you save money the wrong way? Well, I did. 

I was saving to save – just because. It was a chore and that I believed this is what smart people do. I didn’t know what exactly what I was saving for. Every time I had a little nest egg set aside, I had to pull out of my savings. 

Although I was doing the right thing setting aside money for ‘the future’, I didn’t consider that the future is not only rainy days but also future purchases, aka. ‘wants’. Whenever I wanted to splurge on something, it felt so wrong to touch my savings account. It was one step forward, two steps back. This whole thing was dripping from guilt and frustration.

Why It Wasn’t Working  

As much as I wanted my personal finance strategy to work, it didn’t. At least not in the long run. I figured it either wasn’t the right strategy or I simply sucked at this money stuff. 

I was always overspending at some point or not meeting my savings goals because something came up and I had to tap my reserves. Life happens. It was making me mad and my money matters were stressing me out. I had a system, my life just didn’t fit in there. Guess what, it is not a working system if it doesn’t work FOR you. 

I was trying to make my life fit in my budget. I did not realize that my budget had to fit my life’s changing winds. My spreadsheet budget was an idealized version that did not withstand the test of reality. Making any adjustments felt like a failure. Instead, this is exactly what life is. Your budget needs to reflect that sometimes, life happens and you have to roll with the punches. 

My budget strategy wasn’t working for two reasons: 

• It wasn’t flexible.
• It wasn’t motivating. 
• I had no idea what I was saving for.

Here’s the lesson: Life is not a straight line. No day, week or month is the same.

There Are No ‘Normal’ Months

Every time I entered my income vs. expenses in my spreadsheet, something came up. Birthdays, events I needed an outfit for, a parking ticket, a last minute trip.

Once Christmas is over, there came birthday season (all birthdays in my family are spread over March and April). By that time, I was already late saving for summer vacation.

It seemed like there was always something. And it seemed like I was always behind. 

My budget was not working, because I did not budget for ‘unexpected’ stuff. 

Now, I can just budget for “things I did not budget for” and I am fine. Before, I budgeted very strictly and had to tap my savings when anything outside the plan happened. It felt like a failure every time. 

So What Is a Good Budget?

A solid budget should fit your needs and help you manage your money. It is a tool. 

What a good budget does for you: 

• Makes you plan for your fixed expenses (rent, gas, electricity, …)
• Helps you save for larger expenses (new car, vacation, house,…)
• Helps you pay off your debt (credit card payments, student loans, …)
• Gives you enough wiggle room for more irregular/flexible spending (going out, groceries, travel, shopping)

Essentially, a budget needs to be easy and flexible. 

My spending for groceries or gas is different every month. For others it might be a fixed expense, while me it is a fluctuating category. With irregular income, it can get even more difficult to allocate money correctly. With a budget, you can make sure that you prioritize correctly and put money in the immediate expenses category, so you can keep the lights on. 

Whatever your life’s circumstances, your money should serve you. But you need to tell it how it can do that. 

Take Care of Your Budget, Then It Will Take Care of You  

A solid budget takes all uncertainty out of your money. It may sound odd, but my budget was the most liberating thing that happened to me. So the myth that a budget is restrictive and inflexible got busted. 

Here is my non-exhaustive list of the benefits of budgeting: 

• Full control over my money 
• Helped me set and achieve goals 
• Flexibility to move money around if needed and still be on top of my finances
• Seeing that everything is taken care of gave me peace of mind
• Freedom and permission to spend if I wanted to

My good old spreadsheet was good but not great. On the hunt for something bit more functional and flexible, I tried and tested many budgeting apps. YNAB is my favorite so far. 

Here’s what was different: 

• I knew how much money I had available in each category
• It was crystal clear what I was saving for 
• I could take money into the next month if I didn’t spend it 
• It was motivating and rewarding to ‘keep’ money 

My Best Budgeting Resources

There are a ton of budgeting tools out there nowadays. I recommend playing around with it for a few weeks to see how you get along with it. Most apps offer free trials, so you can get used to the functionality and features and see what works best for you. 

Here’s my top list of budgeting tools I wholeheartedly recommend: 

YNAB (You Need A Budget) is my go-to budgeting tool. It us a web-based app that synchronizes smoothly on mobile. You can enter expenses on the go and always have your budget up to date. For most banks, it pulls transactions automatically. I see all my accounts in one place and have a full overview over my finances. I think it is the best app to help pay off loans, manage credit cards and savings.

Pocketsmith takes it once step further. It has the amazing feature to forecast and make predictions of your financial future based on your current behaviour as well as create scenarios and how they impact your finances in the future. Also, the calendar feature makes paying bills on time easy and gives you a full overview what is happening to your money and when.

Mint is another quite popular personal finance tool. It allows to track multiple accounts, updates transactions automatically and is great to see your finances at a glance.

Thanks to having a budget that works, I am never stressed out about money anymore. I can save for all the things and it made paying off debt very easy and motivating. It is almost impossible to overspend. 

My budget bought me something that no money can buy: peace of mind. 

Do you budget? What tools do you use?