Most of us budget by looking at how much we make and dividing it up among things we need or want. When your budget includes all your income, though, you'll likely spend it all. Instead, choose one budget level and stick with it, no matter what windfalls or pay raises you get.
Photo by jridgewayphotography
As personal finance blog Money Can Buy Me Happiness explains, you don't necessarily need to allocate every dollar you take in. Setting a budget based on the kind of life you want to live and then sticking with it means that if you get a raise, a tax refund comes in, or you have some other kind of windfall, you won't change your lifestyle to accommodate it. It's living within your means, regardless of what your means are:
I drew up a budget that accounted for everything we needed, regardless of how much we earned. I was aware of our income limitations of course, but they did not dictate how I budgeted. The figure changed slightly to account for increases in expenses as I went from living in a shared house with house mates, to living in a one-bedroom apartment and then to living in my own house with my family.
You see, the problem with budgeting the other way round — by working out what you earn and then how to divvy it up to cover what you need/want — means you'll never have a spare dollar. I promise you every gap will be filled. If you are a master budgeter you might plan savings as part of your budget but the reality is that most people don't pay themselves first. They pay the bills and then what's left has to cover everything else. There might be a little leftover for savings, but more than likely that little bit will go on crap you don't need.
This (and all budgets) are harder to do if you make less money. However, the upside is that as you move up and make more, you're already accustomed to spending less.