Budgeting Basics | How to Make a Realistic Budget

So, you’re ready to start living on a written budget. Great!

Now what?

I’m sure there are many ways to make a budget that works for you, but here’s our story.  As I’ve confessed before, when Frankie and I got serious about getting out of debt, our first hurdle was figuring out how to make a budget.

A REAL budget.

(As opposed to a theoretical one.)

We had made plenty of budgets before, but those were all theoretical ones. You know, like, “Theoretically I should spend $200 a month on gas and $500 a month on food.”

The problem is, those numbers didn’t have anything to do with what was happening in real life. We made those budgets like they were an assignment at school, forgetting the essential ingredient – we had to live by the numbers.

So, how did we finally make the shift to REAL BUDGETING?

First, we tracked our spending. Religiously. For 2 months.

Tracking our spending was illuminating for two reasons:

1. I found out how much we were really spending on all those theoretical categories. Most of the time it was (significantly) more than I had budgeted.

2. I found out that we were spending money on things I hadn’t even thought to budget.

In order to track our spending, we went old school – pen and paper. My husband and I each carried a little notebook with us everywhere we went. We wrote down every.single.thing we bought. No expenditure was too small.

I’ll be honest. Doing this was laborious and exhausting. But it was thorough. Something we had never been before.

If old school pen-and-notebook tracking isn’t your style, here are some other options:

  • Save receipts: This will work just fine, as long as you keep every single receipt for every single item you buy. Miss just a few things and your numbers will be off – which, ultimately, means your budget will be off.
  • Go back through credit card and bank statements at the end of each month: In this day and age of multiple bank accounts and multiple credit cards, this option can be a bit cumbersome.  Make sure you account for any cash withdrawals, too, if you do this.
  • Use a tracking software like Quicken (which isn’t free) or Mint.com (which is free): This is an automatic way to track, but you must link all your accounts so that you have an accurate picture – bank accounts, credit cards, debit cards, etc. Also, if you withdraw cash, you must remember to account for where that cash was spent.

How to Turn Tracking Into a Real Budget

After the first two weeks of tracking, I created an Excel chart to start recording the scribbles from our notebooks. I used very broad categories, under which I wrote down the name of the item we had purchased and the amount we spent.

So, for example, if we bought a bottle of water, I put it under “Food”. If we paid our electric bill, I put it under “Home: Electric”. And if I was charged interest on my credit card, I put it under “Stupid Tax” (Dave Ramsey followers will appreciate that one!).

By the end of two months, I had a very good picture of the sum total of our day-to-day expenses. The only things that were missing were our annual expenses, like home owners insurance or auto registration. Those expenses were easy enough to track down and add into my tallies.

With all this data, I started making a budget.

Immediately I saw things we could cut – like cable. And bottled water delivery.

For the rest of it, I had a REALISTIC place to start with our budget. Our tracking told me, for example, that we were spending roughly $1300 a month on food (5200 NIS). That number didn’t “fit” for us – it was too high. But I knew we couldn’t go from $1300 to $600 over night. So, we set a budget of $1100, then $900, then $800 and $700 and eventually got it down to $500.

As I’ve mentioned before, we revisit our numbers every month. We regularly tweak and fine-tune. It’s our way of keeping our budget REAL.

Sometimes we have to increase a category – like we have this year with our food budget. Many times, though, we are able to reduce categories – or eliminate them all together.

That’s because the longer we do this, the more stuff we are willing to give up. When balanced against ditching debt or building savings, the stuff just doesn’t seem as important.

Plus, I’ve gotten a lot better at savvy shopping – which means I can actually purchase a lot more with a lot less money.

Stay tuned next week when I share our monthly budget. A number of you have asked, so I’m going to share our categories (although not our dollar amounts… that’s a little too much transparency, even for me!) {My friend Abbi just emailed me a great suggestion – to share percentages of our total budget. I will work on that, as it might be helpful!}

Tell me: How do you keep your budget real? Are you a monthly tweaker? Do you track your spending to stay on track? Are you still a theoretical budgeter? Let’s talk!


  1. I have a hard time with this because I feel like our expenses are always changing. I track religiously and then the game changes and the numbers don’t work anymore. For example, a baby grows and eats more. A health issue comes up that raises pharmaceutical expenses for an uncertain length of time. Amazon stops the diaper coupons, making that piece of life cost more, then reduces the automatic discount by another %. You move to a bigger apartment and find that not only did your rent and electricity increase, but look – vegetables cost more in this neighborhood, too! It’s so goshdarned complicated I just can’t seem to keep track no matter how many months I catalog 🙁

    • That is frustrating. It sounds like you are having a lot of changes – often – in your life. And you’re right, that can make budgeting really challenging. It sounds like you need rolling categories. That might give you a little bit of cushion from month to month.

      • Where do I learn more about rolling categories? Don’t recall hearing the term before… is that something I can do on mint.com?

        Adding to the mayhem, our income also fluctuates wildly as I’m self employed and get paid on a per-job basis!

        • It is something you can do on Mint.com. Basically whatever you have left over (or have overspent) gets carried forward into the next month. So, let’s say you figure you spend an average of $600 a year on prescription meds. So, you budget $50/month and let it carry over from month to month. If you spend only $20 in January, then you have $80 to spend in February. Does that make sense?

  2. Great tips. I created a google docs spreadsheet which I used to track our spending for three months. What was nice about that format was that it is online and I was able to access it from my phone, iPad, home PC and work PC. I logged (and categorized) everything I spent in the spreadsheet and by the end of the three months I had a pretty good sense of our real budget.

    • That’s a great idea about creating a google docs spreadsheet, Rivki! Totally genius – I will definitely be borrowing that (with credit to you of course).

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