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You know you need a budget, but sitting down and actually creating one is a whole other story. Luckily, we laid it all out in an easy-to-follow process. Here’s how to create — and stick to — a budget in five simple steps.
First things first, think about how you want to budget. Do you want to track everything manually in a spreadsheet? Use a budgeting app to help you automate the process? There’s no wrong answer, but choose a method you think you’ll stick with — and dare I say — even enjoy.
If you’re a numbers person who loves a good spreadsheet, an automated software like Tiller Money may fit the bill. If you despise the thought of budgeting and want to automate the process as much as possible, a software like EveryDollar may be a better fit.
Once you have your budgeting method, add your total monthly net income. This could include your salary, interest and dividends, investment income, family allowances, child support, alimony and even income from your side gigs or hobbies.
Create budgeting categories for all of your monthly expenses. Look at your receipts and past credit card and bank statements to find the average amount you spend each month on each spend category. Some common expenses include:
You may realize you have way more expenses than you thought when you start calculating them, but that’s okay. You can always adjust these categories as you get more in-tune with your spending.
When you finish your budget you should have a figure that shows money left over at the end of the month. This is your income minus expenses.
Set aside 15 minutes each week to import expenses into your budget, so you can see how much money you have left in each category. If you’ve overspent in one category (such as car repairs), move money from another category (such as dining out or fun money), to cover the difference. That way you don’t end the month in the red.
If you use cash a lot, keep receipts so you know what you’ve spent your money on. Otherwise, you can log in to your bank and credit card accounts to see how much you’ve spent.
No two months are going to be the same, so your budget needs to be adjusted regularly to match your changing finances. The interest rate on your mortgage may go up, straining your budget more than the previous month. Or, you may pay off debts and find you have more money to put toward your savings goals. Whatever it is, stay flexible and be willing to adjust your budget as often as necessary.
Here’s what my budgeting categories looked like before I paid off $18k in student loans. I put all of the leftover money toward my debt, then I used it to build a three-month emergency fund once it was paid off.
Cassidy’s monthly income and expenses
|Cell phone bill||-$75|
|Total income and expenses||$4,000||-$2,500|
Keep these tips in mind when creating your budget:
Here are all the reasons you may want to start a budget and things to watch out for:
This table showcases the different types of budgeting methods and how they compare. Use it to decide which process may work for you.
|Type||Best for||How it works||Popular accounts|
|Zero-based budgeting||Those who want to know how they’re spending every single dollar they make|
|Envelope budgeting||Those who need help curbing spending but don’t want to track every purchase|
|50/30/20 budgeting||Those who are new to budgeting or want to budget quickly|
|Kakeibo budgeting||Those who want to take a more mindful approach to budgeting using a Japanese technique|
A program like Tiller Money is great for budgeters who are short on time. It has two main benefits:
Use this interactive table to compare budgeting apps by monthly fee, service fee and platforms.
Budgeting is the act of tracking what income is coming in and what money is going out each month. So it basically tracks your savings and spending expenses.
It’s the best way to get an understanding of the way you spend, the way you save and then identify ways to improve. A budget can help, no matter what your goals are.
One of the main purposes of budget planning is to know where your money is going each week.
When you’re able to account for your spending, you can learn how to better manage your bills and living expenses. It’s also much easier to pay off debt and avoid accumulating it in the first place.
There are plenty of reasons why budgeting is important, but here are some of the main ones:
Far too many individuals don’t have a clear idea of where their money is going. They just know they never have enough leftover at the end of the month. Budgeting puts you in control of your money and makes it much easier to track spending habits, reach savings goals and pay off debt.
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