How Do I Know How Much to Budget?

Here’s a catch-22 that any new budgeter will recognize:

You need to know how much you spend in order to create a budget,
but you need a budget to know how much you spend.

Let’s take, for example, me. The year was 2013. I was setting up my first budget in YNAB, and I distinctly remember being thrown by my weekday lunch budget. How much money should I set aside for work lunches?

As I grappled with this question, a few thoughts swirled in my mind:

• I had no idea how much I typically spend—and, even if I consulted my bank records, that number fluctuates. It’s a moving target, impossible to nail down.
• I didn’t want to cut out my lunch budget, entirely. I’d be miserable! (I had really fun lunch buddies at work.) But maybe I should?
• I definitely spent too much (which was one of the reasons I needed a budget, in the first place.)

Obviously, I’m here today with a budget, so how’d I solve this one?

How Do I Know How Much to Budget? Just Guess!

As a writer, I leaned on what I know—that first drafts are just that, first drafts. Surely, my budget would need several edits along the way, no matter how perfect I tried to make this first attempt, right?

So, I did my best, employing a little logic. In those days, I was a frequent flyer at Chipotle during lunch hour. My tab was almost always $9 and change, so I decided to cap my spending at $10. Then I multiplied that by five days. $50. Then, again, by four weeks to come up with a monthly total. $200.

… and then I decided that $200 was way too much, given the other priorities in my budget at the time. OK, no big deal. I actually worked from home one or two days per week, and I could commit to packing lunch for at least one day. I whittled my number down, and allocated my dollars, accordingly.

Guessing Gives You a Starting Point.

The exact number that I settled on isn’t important. It changed with time, anyway. (In fact, I don’t even have a category for work lunches, now that I work from home. I eat here.) And, don’t even get me started on how much I allocated for gas or groceries. I pulled those numbers out of thin air …

The important thing to take away, here, is that budgets aren’t about perfection. In fact, that’s one of the most freeing things about YNAB’s Four Rules—you can always lean on Rule Three, and roll with the punches.

With Rule Three, you’re allowed to change your mind—to give your previously budgeted dollars totally new jobs! And doesn’t that just make good sense? Life changes, and your budget should help you prioritize your spending based on the newest information.

Free Yourself.

If you’re setting up a brand-new budget, there’s something very freeing about not needing to get it right, right out of the gate. And, when you remove the pressure to get it perfect, it frees you up to get it done.

We all know the old adage, “Done is better than perfect.”

Well, it’s true. An imperfect budget is much better than no budget at all! It’s a starting point. Keep at it, and as the months go by, you’ll increase your awareness (not to mention have more data) which will help you make more accurate guesses.

… and that leads to better decisions when it comes to your money. Plus, as you get better and better at aligning your spending with your true priorities, it becomes a positive feedback loop. You’ll want to budget more and more. You’ll feel better about your money and, as a result of your efforts, your money situation will improve!

So, start where you are. Don’t stress about getting it perfect, just get going! You’ll be a pro at this in no time.

And, if you ever need any help, drop into one of our free, online classes.