If you have ever spent $15 on a piece of cake (like in every cafe in Paris), $10 on a cup of coffee (like in every Starbucks), or $50 on some fancy [insert random souvenir] – then you have probably felt the need for a budget. You know you shouldn’t waste money on useless or overpriced stuff. (Even an artificial intelligence does so. Gold cables are just fancier than copper cables.) But you just keep doing it. We all have that one DVD that we have never come around to watch. That one bottle of wine/champagne/whiskey that we have been stashing away for five years, waiting for the perfect occasion to drink it. That one book that we promised to read bust instead has become a dust collector. Now, it’s time to change that by setting up a budget, which will help you to save a huge amount of money.
The budgeting process is quite simple: money in vs money out, you are stating all your incomes and all of your expenses.

Budgeting, step by step

Obviously, you will want to start with your income(s) first. If you start with listing all your expenses, you will be crying before you are halfway through with them (spending $50 a month on cheesecakes is one thing, but actually seeing it on paper is another thing). So list everything that you earn – salary, wage, allowances, money you are making on the side… A little piece of advice: Don’t send this list to the tax authorities.
If you want to know how to easily make more money on the side, check out one of our previous articles on how to make money online.

Next, you list all of your fixed expenses like rent, mortgage, insurances, phone bills. Subtract them from your income.
Then you go on to smaller fixed expenses (like a gym membership or Netflix subscription) and important variable expenses like grocery shopping. You don’t include them in the other fixed expenses because here you have some leeway. While you have to shop for groceries, you can adjust them better than your mortgage payments. If your budget is getting tight, buy less expensive stuff (fewer avocados, more carrots). The same goes for things like the gym. You don’t need a gym membership to work out and get ripped. Get yourself a pair of gymnastics rings (also called still rings). For $30, they are the most versatile and cost-efficient workout equipment out there. So these expenses already offer the opportunity to save some money.

Don’t forget to include irregular expenses and other stuff you need to spend money on. Buying new clothes, buying presents for the birthdays of your beloved ones, and so on.

Hopefully you still have some money left now. Most of this money is meant for saving. Ideally, you allocate it to three different categories: short-term savings that you can rely upon if something happens – car repairs, dishwasher replacements, illness. Long-term goals like saving for your next holiday or for a new car. And finally, saving some money for retirement. I recommend to have a fixed amount for these savings. For example, per month you could save $75, $75, and $100, respectively.

If you still have something left now, congratulations! This is your discretionary income. You can spend it on whatever you want – fancy food, new books, going to the movies, etc.
If you are not happy with the amount of your discretionary income, go back to your list and cut some expenses. Maybe you can pack lunch instead of going out for lunch with your coworkers every single day? In the long run, this will save you lots of money.

Now, please excuse me, I have to buy an inflatable pool unicorn ring on Amazon. But check out this article on Medium to read more on smart and simple budgeting.