Nothing’s more fun than budgeting—said no one ever. We get it, creating a budget isn’t the most thrilling of activities, but it’s an important step to take if you want to get your finances in order.
With a budget, you can plan how much money you’ll need for essential expenses, such as rent and groceries, and figure out how to save money for your goals.
So if creating a budget seems like a daunting task, take a deep breath. Just think of it as your financial roadmap to success! Once you have the basics down, budgeting can actually be quite enjoyable. And, if done right, it can help you make the most of your money.
Ready to get started? Here’s how to create a budget.
1. Gather Your Financial Information:
It’s no secret that budgeting requires knowledge of your income and expenses. Before you can start planning, you need to get all your financial information together. You could get all the info you need just by logging into your bank account or getting paper statements.
Either way, try to get 12 months of financial records. And, if you don’t have records that go back that far, just find what you can. The more information you have, the better.
2. Identify Your Income Streams:
Once you have your financial information, it’s time to start planning. First off, list all your sources of income, such as your job, any side hustles you have, investments, and more.
You want to be sure you’re keeping track of your NET income, which is your take-home pay—total wages or salary minus deductions for taxes and employer-provided programs such as retirement plans and health insurance. If you’re a freelancer, gig worker, contractor, or self-employed, keep detailed notes of your contracts and pay to help manage irregular income.
The foundation of any budget is your net income. This will be the starting point for all your budgeting calculations moving forward.
3. Track Your Expenses:
Now it’s time to figure out where the money is going. Begin by listing your fixed expenses, such as rent or mortgage payments, utilities, and car payments. Next, list your variable expenses—those that may change from month to month, such as groceries, gas, and entertainment. Credit card and bank statements are a good place to start so you can get an accurate picture of your expenses.
Keep track of all the money going out, as well as where it’s going. This will help give you a better understanding of where your money is really being spent, and it can also highlight areas in which you might be able to cut back.
And when it comes to expenses, don’t forget the small stuff. Yes, they might be minor purchases, but they can add up quickly if you’re not careful. Little things like that daily latte or snack run can add up, so be sure to include them when you’re tracking your expenses.
4. Set Your Goals:
Once you’ve figured out your income and expenses, it’s time to set some goals. What do you want to do with your money? Where do you want it to go? Do you want to save for a home, car, or vacation? Or maybe you want to pay off debt or save for retirement?
Setting goals will help give you focus and direction when creating your budget. These goals should be realistic, specific, and measurable. And they should also take into account your net income, expenses, and other obligations.
It’s also important to consider how much time you have to save for each goal. If you’re trying to save up for a big purchase, you’ll want to set a timeline for how long it will take and how much you need to save each month. This is where budgeting comes in handy!
5. Make a Plan:
Now that you’ve identified your income, expenses, and goals, it’s time to make a plan. Think of this as a blueprint of where your money is going. Start by determining how much you’re willing to allocate to each category, such as housing, food, and entertainment.
You will need to split your budget into needs vs. wants. Needs are essential expenses such as rent, groceries, and utilities, while wants are discretionary expenses like going out to eat or going on vacation.
Once you’ve determined how much you’re willing to allocate for each item, create a budget that works for you. This can be done manually or with online tools and apps. Make sure to set up reminders for bills and payments—this will help make sure you’re staying on track with your budget. And don’t forget to adjust your budget as needed, especially if your income or expenses change.
6. Monitor and Adjust:
Budgeting isn’t a one-time thing—it’s an ongoing process. You’ll need to track and adjust your budget as needed. Keep tabs on how much you’re spending each month, and look for areas where you can save.
If you’re finding that you’re spending too much in one category, consider cutting back and applying that money to one of your goals. If there’s an unexpected expense, you may need to move funds around in order to cover it.
The most important thing is to stay on top of your budget and make adjustments as needed. It will take some time to get the hang of it, but the more you practice, the easier it will become.
Final Thoughts:
Budgeting is one of the most important aspects of managing your finances. It can help you make the most of your money, track where it’s going, and set goals for the future.
Creating and maintaining a budget isn’t always easy, but it is worth the effort. With some planning and dedication, you can make the most of your money and feel more secure about your financial future. So why not give it a try? You never know—you might just surprise yourself!