This article discusses how to create a budget, especially for people that have never had a budget before. This article contains affiliate links, for more information please see my disclosure policy.
“You need a budget”
You have heard it time and time again, but still haven’t gotten around to making one. It is hard to get started. Budgeting is really intimidating, especially if you have never done it before. Luckily I am here to help. Follow the steps below to start making your budget.
1. Take a deep breath and get started
To most people, creating a personal budget is a daunting task, however it is an important first step towards financial freedom. When you are ready to make your budget, it is essential that you set aside some time where you can focus and not be interrupted. It can also be beneficial to gather up bank statements, monthly bills, and other financial records from over the past several months so that you can accurately plan your budget.
2. Identify Your Income
First, you need to identify your monthly income. Create a line item on your budget for each source of income you (and your family) have. You should include all sources including jobs, side hustles, aid, disability, etc. It is up to you if you want to include money you make from sources like Swagbucks and Inbox Dollars; some people count it as income and some people use it as extra fun money or savings separate from their budget.
Some jobs do not provide a consistent income from month to month (sales, waitressing, self-employed, etc). For these jobs, typically you want to budget using your lowest income month from the past year. This will make sure you can always meet your budget and any extra income and go towards debt or savings!
After you figure out the amount for each source of income, add them up. This is your monthly earnings and what we will as a base to track how much money you have to spend.
3.Calculate Monthly Expenses for Necessities
Now you need to make an item for each of your necessary expenses. This can be an intimidating task but use your resources you gathered in step one to help. Common necessary expenses include:
- Minimum Debt Payment
- Phone Bill
- Medical Expenses
- Car Insurance
Not all your expenses will be a set amount; some, like groceries, are up to your discretion. For variable categories, pick what seems like a realistic amount and then you can always adjust it up or down later after you are using your budget.
Savings – Savings is one of the most important categories right after food and shelter. Building your savings, even by $10/month, can help you handle financial hurtles that pop up in the future without derailing your budget. I find the easiest way to save is to “pay yourself first” and automate some money into a separate bank account, this way you aren’t tempted to skip out on saving.
4.Map out Wants Spending
Next you want to make items for spending that you like to do, but aren’t a necessity. This can include:
- Eating Out
- Gym memberships
Obviously your wants will be unique to you (I put pets under my need), but really take time to consider what is truly a need vs. want. For each of your wants categories, put in what you think is an appropriate amount.
Treat yo’ self – You are probably making a budget because you want to spend less, but don’t set yourself up for failure by over restricting your budget. It will be very hard to follow a budget that limits your spending to the point you are miserable. I highly recommend to make sure allot yourself some fun money to treat yo’ self whether its $5 or $50.
5. Add It All Up
It’s time to figure out how your income corresponds with your spending. Add up all your sources of income and subtract all of your spending categories.
One of two things will happen, either you will have money left over, or you don’t have enough to cover your prescribed spending. Don’t fear if it is the latter, let’s take a closer look at what you can do to fix your budget.
Scrutinize every category – from rent all the way through your want categories, go back and think about if you really need to spend that much or ways you could cut it. For inspiration and ideas, check out how I cut my budget in half.
Side Hustle – Simple math says that if you put more in, you will get more out. Another way to have money leftover from your budget is to increase your income without changing your spending. Consider getting a side hustle to increase your income. Whether it’s earning some money taking surveys online with Swagbucks, getting a part-time job, starting a blog, or driving for uber, every penny can help your budget.
After you comb your budget with a fine tooth comb looking at places to cut money and consider ways to earn more money, go back and add up your budget. Keep adjusting until your income covers your spending with a little leftover (even a couple bucks)
6. Set Goals
Now it’s time to think about your financial goals. What is motivating you to start budgeting? Do you want to get out of debt? Save for a wedding? Down payment on a house? Think about where you want to see yourself financially in the next few years and set a goal.
To get started achieving this goal, use the leftover income that hasn’t been budgeted towards spending, and add a category for your goal. If it is a savings goal, I recommend opening a separate account or using an Acorns investment account to keep the money separate from your everyday spending.
7. Review, Implement, and Maintain Your Budget
Take one more look over your budget to make sure everything is accounted for and you feel as though you have allotted yourself the appropriate amount of money for each category.
There are several options to track your spending against your budget and stay on budget.
It is probably easiest to make some sort of Excel spreadsheet or use free budget management tools like Intuit’s Mint. For either method, track each transaction you make during the month and subtract it from the appropriate spend category. If you are using a manual tracking method, I would set aside time at least once a week to update your spending.
Another way to keep track of your spending against your budget, is to use the cash envelope system. This is a great system for people who don’t want to constantly be checking a spreadsheet to make sure they aren’t spending too much. However much money is in the envelope is how much money you have left to spend in that category.
Whichever way you choose to track your budget, make sure you are holding reviews. I like to do mine at the end of every month. See what went well that month and what you can improve on for the next month. If you are budgeting for more than yourself, make sure to include your significant other during your reviews to keep everyone on the same page.