How to Make a Budget

Regardless of how you manage your money and regardless of how much money you have, monthly budgeting is all about answering two questions. It really is not any more complicated than that. By answering these questions, I promise you can have extraordinary confidence every time you swipe your card, every time you open your bank account, and every time you wake up in the morning and realize the rent is due. You can be confident that you have the money you need to spend without spending hours poring over complicated spreadsheets.

In this chapter, we’ll look at two questions to answer each month, and then get you set up to answer them. The best part is that you’ll only need to spend about five minutes per week on this budget.

Am I spending more than I make?

The first question is a simple one – “am I spending more than I make?” This is the question every person has to answer in one way or another, even if it’s done by opening the bank account, taking a quick peek, and quickly closing it again. If you don’t answer the question, believe me, the bank will help you answer it. While this question is simple, answering it well is surprisingly uncommon.

When you first had money as a child, you developed habits for knowing if your spending was under control. At the beginning, you probably only had a single checking account and a debit card. With one account, you can literally just look at your account and know for a fact if it's above $0 or not. But if you are like me, one account turned into many accounts – a complicated mix of credit cards, savings accounts, mortgages, and checking accounts – and it became impossible to see an accurate balance. There’s nothing wrong with having a complex financial life, since there can be real benefits to maintaining a few credit cards, as long as you make sure to always answer: “am I spending more than I make?”

With the Money Habits app, we show you a graph of the past few months of your spending to see how your balance is changing over time. That way, it’s trivial to make sure you haven’t spent too much money.

Am I spending in the right ways?

The adult version of me is downstream from the teenage version of me and let me tell you – adult-me would love to help teenage-me rethink some of his dumb purchases. Can you relate? A lot of people would say they aren’t very good with money. If you feel that way, it’s probably not true – you are probably quite successful at getting your needs and wants met even if those needs and wants mean sacrificing saving for the future. You are fantastic at money. It’s the saving that is a problem.

Eventually, all of the money we earn in our lifetime will be spent for better or for worse and we are responsible to steward our God-given resources to the best of our ability. That’s why I try to regularly ask the question “am I spending in the right ways?”

In pursuit of good stewardship, I find it helpful to break my money choices down into four goals – (1) care for myself and my family, (2) enjoy God’s creation, (3) participate in God’s mission, and (4) prepare for tomorrow. Every decision we make will fit within one of the four goals of money so my budget uses four categories – need, want, give, and plan – to make sure I stay on track with my spending.

A healthy budget balances all four goals.

We will use the Money Habits app to make sure our needs and wants stay in balance with our plans. “Need” and “want” are consumption-based categories focused on the money you will spend this month while "give" and "plan" help you prepare for the future and give back to the community. Using the budget simplifies purchase decisions by changing the question from “can I afford this” to “is this purchase in line with my goals?” By using Money Habits to organize our income, we can see the trade-offs we are making between each of the four goals. Let’s take a look at the four goals a bit more closely.

Need – caring for my family

The “need” category is simply the regular stuff of life which we just have to pay for. I don't know about you, but I've never been tempted to buy more insurance or pay extra for my cell phone bill just for fun. If you add the routine expenses together, I bet they don't change much from month to month, and you probably don’t have the option to “go without” on most of these items, either. For right now, just accept those items as critical and move on.

How do you know if something is a need or a want? It's easy! Answer the question: "could I have put off this purchase for a month?" Avoid the temptation to imagine what a crowd of people would think – if you needed new shoes, put them in "need" and if you just wanted new shoes, put them in "want." To be honest, it doesn’t matter that much which one you pick as long as you remain relatively consistent over time.

There are a few categories which almost certainly fit within “need,” including mortgage/rent, cell phone, insurance, water, gas, electricity, haircuts, gasoline, car maintenance, and groceries.

As a quick practical tip, try to automate as much of the need category as possible. Many services like water, gas, mortgage/rent, and credit cards can be paid automatically, and this is going to save you a ton of time. If your utilities offer 'budget billing' or 'smoothed billing', take advantage of that to eliminate the big swings in utility cost through the seasons. A few minutes spent automating up front will help make money management feel like less of a chore later.

Want – enjoying God’s creation

The "want" category is positively wonderful. Too many people hear "want" and think it means purchases which are frivolous or selfish. On the contrary, we live in a time and place where it's possible to eat more than just bread and water, where we can safely fly around the world, and where we can get anything delivered to our home in a few days. Our great grandparents would be gobsmacked by the cultural goods and services available. We should never take for granted the ability to order a dozen warm cookies from our magic glowing screens and have them delivered in an hour for $30.

But at the same time, all this abundance makes it easy to overindulge our wants in the short-term. Our culture is fine-tuned to pique our appetites for cars, gadgets, restaurants, clothes and experiences at the expense of longer-term planning. Enjoying God’s creation is critical to the Christian life, but God warns against gluttony - Philippians 3 warns about the people whose god is their stomach by calling them “enemies of the cross of Christ.”

Give – participate in God’s mission

I became a Christian as a child and got my first job at 15, which provided my first opportunity to avoid giving to the church. Through college and into early working life, I didn’t give with much consistency or much joy. Even though I felt some shame about my lack of generosity, it wasn’t until Molly and I got married at 25 that we started to give each week. To be honest, generosity still doesn’t have much natural appeal to me. If our giving to church weren’t automatic, I wonder how consistent we would be.

Giving to the church is not done because God needs it, nor because the church needs it. God is capable of accomplishing his kingdom purposes without your money. We give because we belong, and belonging matters. Giving money away is the only part of your budget whose first purpose is not self improvement. We give because we worship God who gives and invites us to do the same. We give because we belong to a community and the community thrives when everyone sacrifices for each other. We give as an act of rebellion against the lords of Avarice and Miserliness who want us to buy into the idea that there is only one moral good and it is individual pleasure.

God loves a cheerful giver.

Practically, auto-drafting your giving on a weekly basis can help. Some people feel that auto-draft removes some of the spiritual faithfulness of physically giving the money each week. Unless you share those convictions, let the computer assist in your faithfulness by automating the process.

Plan – prepare for tomorrow

Preparing for the future is a means of being kind to your future self and the people you love. If you’re under the age of 40, the vast majority of expenses you will incur in your life are still ahead of you, especially if you choose to have kids. It’s possible to predict those expenses will arrive, even if we’re not sure exactly when. By planning for these events, your plan can help absorb the impact and stress of big expenses.

Practically, try to set aside at least 10% of your monthly income to planning for future expenses.

Add your bank accounts

This is important...in order to have a complete picture of your money, we need every bank account and credit card added. The budget will not make sense unless everything is there.

Set your targets

In Money Habits, each category has a target for what you expect to spend that month. If you add all of the targets together, they should roughly equal your monthly income. In other words…

Income = Need + Want + Give + Plan

You know the answer to question two – am I spending in the right ways – when all of your targets are at zero at the end of the month.

Categorize your transactions

You only need to categorize transactions from this month and since Money Habits only uses four categories – need, want, give, and plan – it’s super quick.