It’s no secret that budgeting your money is the best way to attain financial freedom, but actually sitting down crunching the numbers is a whole other story. Luckily, we’ve laid it all out in an easy-to-follow process. Here’s how to budget in six simple steps.
1. Find your budgeting method
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.
2. Tally up your income
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.
3. Calculate your expenses
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:
Rent or mortgage payment
Phone bill
Car insurance
Internet
Phone bill
Utilities
Groceries
Haircuts
Gas for car
Transportation/parking
Car repairs
Medical expenses
Holidays and gifts
Renter’s or homeowner’s insurance
Property taxes
Bank fees
Dining out
Subscriptions
Entertainment
Fun money
Forgot to budget for (this category catches all the little things you forgot to set aside money for)
Credit card
Student loans
Medical bills
Auto loan
Mortgage
Emergency fund
Vacation fund
Downpayment on a house
New car fund
Retirement
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.
4. See where you stand
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.
If your budget shows a positive figure, then you’re spending less than you earn. Congratulations! Take that extra money and put it toward your savings goals and debt.
If your budget shows a negative figure, living beyond your means and possibly accruing more debt. Evaluate your expenses to see what you can do without. Maybe you can shave $50 off your dining out budget or cut out the one subscription service you use least. It doesn’t have to be anything drastic, but small changes will add up over time.
5. Track your progress
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.
6. Be flexible
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.
Example: Budgeting spreadsheet
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
Income
Expenses
Salary
$4,000
Rent
-$750
Groceries
-$450
Dining out
-$355
Car loan
-$305
Utilities
-$150
Miscellaneous expenses
-$150
Cat expenses
-$100
Car insurance
-$95
Cell phone bill
-$75
Car fuel
-$55
Subscriptions
-$15
Total income and expenses
$4,000
-$2,500
Leftover money
$1,500
4 budgeting tips and tricks
Keep these tips in mind when creating your budget:
Think long-term. You’ll most likely budget for the month, but remember that improving your finances is a long term commitment. You may not see results at first but keep at it. The reward will be worth it.
Set realistic expectations. The first month your budget is in place is a good barometer of how realistic it is. If you can’t stick to it in the first month then you may need to revise it.
Keep it simple. Less is more when it comes to budgeting categories. Instead of having a category for every little expense, create your main categories, then one “Forgot to budget for” category to catch the miscellaneous.
Make reviewing your budget part of your routine. Get in the habit of reviewing and adjusting your budget at least once a week. Maybe you can do it with your morning coffee on Sundays as you begin to mentally prepare for the next work week.
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When you create a budget, you’re building a plan for your money — and your future. A budget guarantees you’ll always have the funds to pay for upcoming expenses as well as any unforeseen bumps that crop up along the way. A budget can also help relieve you of the burden of debt or allow you to grow your savings at a steady rate. It provides a good overview of all your expenses and help you establish financial goals and future savings plans.
Bottom line
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.
Frequently asked questions
Yes. Most students are on limited incomes, so using a budget can be a great way to ensure you keep up with bills and manage your income. When you have your expenses set out in a budget, the temptation to overspend on other things is reduced. You become far more aware of what money you have available and what areas of your spending you can cut back on. Learning to budget as a student can help you develop sound financial management habits that will help you in your adult life.
Budgets are vital in business. Whether you run a multinational organization or the local corner store, budgets are an excellent tool for day-to-day business operations. There are various options for business budget planning software packages and most can be customized to suit any businesses’ needs.
Business budgets can be used for:
More effective money management
Business performance monitoring
Identifying and meeting financial objectives
Improving decision making
Identifying potential cash flow difficulties or problems
Cassidy Horton is a writer for Finder, specializing in banking and kids’ debit cards. She’s been featured on Legal Zoom, MSN, and Consolidated Credit and has a Bachelor of Science in Public Relations and a Master of Business Administration from Georgia Southern University. When not writing, you can find her exploring the Pacific Northwest and watching endless reruns of The Office.
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