6 Action Steps for Building a Budget

by Tom Tousignant

in Blog, Budgeting, Credit Scoring, Wealth Building

Here are Six Simple steps you can take to easily create a spending plan that you can live with, and even Succeed with:

Action Step 1 – Set a Goal

Believe me, goal-setting is one of the most important skills you can possibly learn, no matter what field you’re in. 

If you talk to any entrepreneur about how they were able to achieve their success, I guarantee you that one of the first things they’ll tell you is, “I set goals, and then I commit to them.” 

Okay, it’s good to talk about goals, but how exactly do you set them? I recommend that you follow the time-proven S.M.A.R.T. format. Here’s what this acronym stands for:

  • Specific
  • Measurable
  • Attainable
  • Realistic
  • Timeframe

Be sure to read this for more details on SMART Goals. If they aren’t SMART goals, they are just hopes.

Action Step 2 – See Where Your Money Is Going

The following task is one you must absolutely, positively accomplish – sit down right now (and every month thereafter) and go line by line over your credit cards to determine where your money is going. I guarantee you that the results will be shocking. 

Those “discretionary” items add up. By discretionary, I mean items you don’t need like those weekly $4 cups of coffee, $10 lunches, or $20 dinners. 

And once you’ve identified those items, then you must… 


Remember, every dollar you save on discretionary items can go back to work for you – to pay off debts faster, increase your savings, or grow your business and income. 

Action Step 3 – Find Ways to Save.

Too much of what we spend is just old habit, or automatic payments that occur over time.  For example, I subscribed to a magazine years ago that somehow auto-renews and keeps on coming, even though I haven’t read it for years.  After you know where you are spending your money – look for things to eliminate, and for things that you can do better.  Here are some quick things to find:

Most people can easily create $300-$500 per month in savings just by finding and eliminating the leakage in their spending.

Action Step 4 – Live Frugally (for a Set Period of Time)

Here’s a simple fact: it’s much easier to save $1,000 by cutting expenses than it is to make $1,000 in income.

A key to budgeting is that you have to be willing to make sacrifices for a definite short period of time (not forever). It’s actually an investment in your financial future! 

As Dave Ramsey, author of The Total Money Makeover, says,

“Live like nobody else today, so you can live like nobody else tomorrow.” 

Make it a game or a contest to spend as little as possible for a period of time.  Then, reward yourself with some of what you saved to make the game enjoyable.  Imagine how much more enjoyable a weekend getaway would be if it was paid for, not with credit cards, but from saving some money by living frugally for a period of time.

In other words, practice financial discipline and accountability today, and you have the potential to achieve incredible financial success in the future.

Action Step 5 – Pay off those Credit Cards and… 


To avoid the temptation to use your credit cards, follow this guideline: “If I have to finance it, I can’t afford it.” Or, to put it another way, “If I can’t pay cash for it now, I don’t need it.” 

In my opinion, the only things you should be financing in your life are your vehicle and your home. (And we can talk about the vehicles…)

Having seen well over 1,000 credit reports, the highest scores are always the people that have no more than 1 mortgage, 1 Credit Card, and 1 car loan.  You have to use credit to have great credit, but too much hurts your score.

Never open or use department store credit cards.  Saving 10% on something you don’t really need (See action step #3) stills means you are spending 90% on something you don’t really need.  Avoid the temptation when the salesperson offers you 10% off for a new card – tell yourself that you wouldn’t be offered a discount on this if you really needed it.

 Action Step 6 – Plan Your Spending Carefully

Right now, you’re saying, “Okay, I get the point! I need to budget and budget well on a consistent basis. But, how exactly do I allot my dollars so I cut spending and increase my business at the same time?” 

An excellent question! Although every individual situation is different, here are some guidelines that, over time, will work for everyone:

Guideline 1: Live off 70% of your “take home earnings.”

That’s right, spend 70% on the “have to’s” of your life; for example, food, mortgage payments, utilities, etc.

Guideline 2: Give 10% back to God.

The simple act will pay you back many times over, I guarantee it. If you’re not particularly religious, then give to your community…to a charity…an educational institution, etc. Your church or other institutions have given you plenty; return the favor. 

This is a key to success as it establishes ownership of money entrusted to you – if you see yourself as a trusted steward of God’s money, you will manage it better.

Guideline 3: Use 10% to pay off debt (over and beyond your minimum balance) or for short term savings

If you can’t pay off your debt right away, pay it off on a consistent basis. Never pay just the minimum balance, particularly on your credit cards! Pay a minimum of 10% beyond that amount (even more if you can). Get that monkey off your back!

Once you have eliminated short term debt (everything but your mortgage and car loan), save that money, so when you have an unexpected expense, you never have to reach for the credit cards again.

Guideline 4: Place 10% in investments (stocks, mutual funds, etc.).

Definitely invest for the future! You want your money out there making more money. So, invest wisely and, of course, spread the risk over different types of investments.

Here’s an example of how the application of these guidelines looks in concrete figures. Let’s assume you earn $8,000 a month in take home income. The budgeting breakdown would look like this: 

  • $8,000 a month take-home
  • $5,600 (Mortgage, Food, utilities, etc.)
  • $800 to God
  • $800 to debt / short term savings
  • $800 investments

One final piece of advice: Nothing helps your budget out more than earning more money.  So, figure out what you can do to become better and more valuable at your present job.  Then, your boss, or your customers, if you are self-employed, will have to pay you more – or someone else will.

In Summary, you can succeed financially by having a plan to do so – let’s just call that plan a ‘Budget’.  Here are the steps:

  1. Set a Goal
  2. See Where Your Money Is Going
  3. Find ways to save
  4. Live Frugally (for a Set Period of Time).
  5. Pay off those Credit Cards
  6. Plan Your Spending Carefully

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