Overhauling Your Budget from Top to Bottom


Sometimes you need to make big changes to see a lasting change. Many budget experts believe that you need to first tackle your bad spending habits before you can really see a difference in your bank account. But when you’ve been living a certain way for years, it can be difficult to even see where to begin. In this situation, you need to perform a complete budget overhaul.

Begin With Your Income

Income can be incredibly difficult to estimate — so don’t. Make sure that you know exactly how much you have in take home pay every month. If your pay varies, estimate it out based on the amount you took home the last six months; don’t try to estimate based on the most that you usually bring in. Keep in mind that if your pay is erratic you will need to be more careful with your budget. Your budget will need to be more restrictive to ensure that you have a buffer during leaner earning periods. 

Separate Your Expenses Into Needs and Wants

Go through your monthly expenses and separate every expense that you had into two piles: a “need” and a “want.” Rent is a “need” — it’s something that you cannot avoid spending money on. Going out to eat is a “want” — it’s something that you enjoy but that you don’t necessarily need to do to survive. At this stage, you don’t need to make any judgment calls on whether you’re spending too much on each item; you just need to classify all of them. Make an orderly list.

Find Ways to Reduce the Cost of Your Needs

Once you have separated your expenses, go through your needs line by line and identify areas in which you can save. Rent and transportation are two of the most costly expenses and occasionally they relate to each other; often you can save money on rent by moving farther away, but you need to spend more money on transportation to compensate. Other areas can be more straightforward; you may be paying $80 a month for a cellphone but be able to get by on a $40 month plan. Investigate alternatives for each of your budgetary line items to find sensible ways to reduce the cost. Something like downgrading your cable is likely to save you a lot of money over the course of a year but will probably not have a significant affect on your quality of life.

Pare Down Your Wants to the Things You Want the Most

When you get to your needs list, your goal is to order them by the amount that you value them. If you spend a lot of money on a multitude of hobbies, now is the time to decide which of those hobbies you enjoy the most and which gives you the most value. Ideally, you should cut your “wants” section down to the top three or top five things that you enjoy, depending on how restrictive your budget is. If you’re a foodie more than a fashion maven, you may find that getting a haircut at a salon doesn’t make the cut, but eating out once or twice a month does. If you’re a reader more than a movie buff, you may find that purchasing a few new books a month is more important than seeing a couple of new release movies in the theater. By prioritizing your wants you allow yourself to still enjoy the things that you enjoy most while cutting back on some of the expenses that really aren’t that important to your happiness. 

Put Your Budget Together

Once you have created your revised budget, it’s time to put it all together. Deduct all of your expenses, both needs and wants, from your income to see where you’re at. Remember that it’s more than just having a buffer — you also need to be able to save enough money to create both an emergency savings account and contribute to your retirement fund. Once you have a sensible budget, it’s just a matter of adhering to it on a day-to-day basis.

The goal of creating a budget isn’t simply to restrict your spending — it’s to restrict your spending in a manageable way that will still leave you comfortable and happy. When you create a budget that leaves you frustrated, bored or deprived, it’s very easy to fall back on old spending habits. Like a diet, a budget overhaul has to be done with your continued health and happiness in mind.