Creating a personal budget may sound like a daunting task, but it doesn’t have to be. Whether you’re just starting out or have been trying to save for years, understanding how to manage your money better can significantly impact your future. Our brains are naturally programmed to follow routines, and when it comes to managing money, sticking to a routine is key. In this post, we’ll explore how to set up a budget, stick with it, and build healthy financial habits.
We’ll also take a look at two couples—Emma and John, who have mastered sensible living, and Sarah and Mike, who often confuse wants with needs. Their stories will help us understand what works and what doesn’t when creating a budget. Finally, we’ll dive into the concept of “same with sameness”—our brain’s love for routine—and how this can be the secret to long-term financial success.
Why Create a Budget?
First, let’s ask an important question: why bother creating a budget? A budget helps you keep track of your income and expenses, so you know exactly where your money is going. It ensures you’re not overspending and helps you save for future goals, like buying a house, going on a vacation, or securing your retirement.
When you budget, you gain control over your money instead of letting it control you. Think of a budget as your roadmap to financial security. Without one, it’s easy to get lost or confused. With one, you’ll know exactly where you’re heading and how to get there.
But as simple as this sounds, sticking to a budget isn’t always easy—especially if you’re like Sarah and Mike, who often mix up their needs with their wants.
Sarah and Mike: Confusing Wants with Needs
Sarah and Mike are a classic example of a couple that struggles to manage their money. They often find themselves broke at the end of the month, wondering where all their money went. The truth is, they have a habit of mistaking wants for needs. For example, when Sarah buys her daily coffee on the way to work, she tells herself it’s a “need” because she’s tired and deserves a pick-me-up. Mike splurges on a new pair of sneakers, convincing himself he “needs” them because they’re on sale.
This confusion between wants and needs has landed them in financial trouble. They live paycheck to paycheck, with no savings for emergencies or long-term goals.
But here’s the thing: Sarah and Mike can change their situation if they create a budget. They need to get clear on what their actual needs are—things like rent, groceries, utilities—and what their wants are, like new shoes or that daily coffee. By differentiating between the two and cutting back on unnecessary spending, they can start saving and working toward financial stability.
Emma and John: The Sensible Couple
In contrast, Emma and John have mastered the art of sensible living. They’ve created a budget that works for them and stick to it month after month. They’re not rich by any means, but they live within their means and always have a little extra saved for emergencies.
The secret to their success? Routine.
Emma and John set aside 20% of their income for savings, investments, and future goals. They make this automatic by having the money transferred into a savings account as soon as they get paid. This way, they don’t even miss the money. They also keep track of their spending carefully, ensuring they don’t overspend on things they don’t need.
For Emma and John, budgeting isn’t about restriction; it’s about freedom. Because they manage their money well, they don’t have to worry about debt or running out of cash at the end of the month. They’re free to enjoy life without financial stress.
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Same with Sameness: The Power of Routine
So, what’s the secret to creating a successful budget like Emma and John? It all comes down to a concept called “same with sameness.” Our brains are hardwired to run on routines, and once we establish a routine, it becomes easier to follow through on our goals.
Some people thrive on routine—like me. I don’t like change and prefer things to stay the same. For example, I’ve always felt comfortable staying in one job for my entire career, sticking with the same well-diversified, low-fee investment fund, and saving a percentage of my income every month. This routine has given me stability and financial security over time.
Other people, like Sarah and Mike, find routine boring and crave change. They might switch jobs every few years or hop from one investment trend to another, always looking for the next big thing. But when it comes to personal finances, change isn’t always a good thing. Chasing trends or constantly switching between saving and spending can lead to financial losses.
The key is to embrace routine. By programming your brain to follow a regular savings plan and sticking with it over the long term, you’ll begin to see results. Your savings will grow, your debts will decrease, and you’ll start feeling more in control of your money. The more you stick to the same routine, the easier it becomes.
- Step 1: Track Your Income and Expenses
The first step in creating a budget is to understand where your money is coming from and where it’s going. Write down all your sources of income—your paycheck, any freelance work, government benefits, or other income streams.Next, track your expenses. List everything from your rent or mortgage payment to groceries, utility bills, and debt repayments. Don’t forget about those little purchases that can add up, like coffee runs or lunch outings. Use a notebook or a budgeting app to make this process easier.
By tracking your expenses, you’ll get a clear picture of how much you’re spending and where you might be overspending.
- Step 2: Differentiate Between Needs and Wants
Now that you have a list of your expenses, it’s time to separate your needs from your wants. Needs are things you can’t live without, like housing, food, transportation, and healthcare. Wants are things that make life more enjoyable but aren’t essential, like dining out, entertainment, or luxury items.
Take a close look at your spending. Are you spending too much on wants and not enough on needs? This is where Sarah and Mike often went wrong—they treated their wants as needs, which led to overspending and financial strain.
Once you’ve identified your needs and wants, you can start cutting back on unnecessary expenses. This doesn’t mean you have to eliminate all the fun stuff, but it does mean finding a balance that allows you to save more for the future.
- Step 3: Set Financial Goals
Having clear financial goals can make budgeting easier and more motivating. Think about what you want to achieve with your money. Do you want to build an emergency fund? Save for a vacation? Buy a home? Retire comfortably?Write down your goals and break them into smaller, achievable steps. For example, if your goal is to save $5,000 for an emergency fund, aim to save $500 per month over 10 months. Setting specific goals will give you something to work toward and keep you focused.
- Step 4: Create a Monthly Budget
Now that you know your income, expenses, and financial goals, it’s time to create a monthly budget. This is where you allocate your income toward your needs, wants, and savings.
Use the 50/30/20 rule as a guide:
- 50% of your income goes toward needs (rent, groceries, utilities, etc.).
- 30% goes toward wants (dining out, entertainment, etc.).
- 20% goes toward savings or debt repayment.
Adjust these percentages based on your individual situation, but make sure you’re saving a portion of your income each month. Even if it’s just a small amount, consistent savings will add up over time.
- Step 5: Automate Your Savings
One of the easiest ways to stick to your budget is to automate your savings. This means setting up automatic transfers from your checking account to your savings or investment account as soon as you get paid.
By making savings automatic, you’re less likely to spend that money on wants or impulse purchases. This is a strategy Emma and John have mastered—by automatically transferring a percentage of their income into savings, they’ve built a healthy financial cushion without even thinking about it.
- Step 6: Review and Adjust Regularly
Your budget isn’t set in stone. Life changes, and so do your financial needs. Review your budget regularly—at least once a month—and make adjustments as necessary.
For example, if you get a raise at work, you might increase your savings rate. If you have an unexpected expense, like a car repair, you might need to cut back on your wants for that month to stay on track.
The key is to stay flexible while sticking to your overall routine of saving and managing your money wisely.
Commit to Same with Sameness
Creating a personal budget is the first step toward financial freedom, but sticking with it is where the real magic happens. Just like Emma and John, you can build a routine that helps you save for the future and live within your means.
If you’re like Sarah and Mike and struggle to differentiate between wants and needs, start small. Track your expenses, set clear goals, and make small adjustments over time. And remember, our brains thrive on routine—once you establish a savings routine, it becomes easier to follow through.
So, are you ready to commit to “same with sameness”? Stick with your budget, embrace routine, and watch your financial situation improve. The journey might take time, but the rewards are worth the effort.
We have a number of resources, including excel spreadsheets to help you on your budget journey at Free Planning Materials.
In my E-books (“Water Barrel” and “The Balance”) I discuss simple methods to live sensibly for today, take charge of your financial affairs, and invest safely for the long term. For more information please visit David Penna Amazon.
Disclaimer for ManageYourMoney.ca
The information provided on ManageYourMoney.ca is intended for educational and informational purposes only. It should not be taken as financial advice. The opinions shared are those of the authors and are meant to encourage sensible financial habits and decision-making. We recommend that you do your own research or consult a certified financial advisor before making any financial or investment decisions. All investments come with risks, and there is no guarantee of success. Past performance is not a reliable indicator of future results. Always consider your personal financial situation and risk tolerance before pursuing any investment opportunities.
As always, we are not a qualified financial advisors. We just relate financial management to our own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of ours came from expensive experiences.
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