How to Create a Budget In 5 Easy Steps
/
If you are living paycheck to paycheck, trying to get out of debt, saving for your children's college fund, stressed about money, or even looking to make a big purchase, you can benefit from a budget.
What is a budget?
A budget is a system in which you track your expenses and income and plan the way you spend your money and pay your bills. Most people think a budget is supposed to be restrictive. They think it’s a plan that forces you to cut back on all the things you love and want to do. But it’s not! A budget simply tells your money where to go, without wondering where it went.
How to create a budget
Set a Budgeting Goal
Setting is a budgeting goal is crucial to your success. It helps you to remember what you are striving for and lets you know when you've gotten there. To create your goal think about what you want your finances to look like and by when, in other words, this goal should be SMART. SMART stands for Specific, Measurable, Achievable, Realistic, and Time-bound. Here's an example of a Budget SMART Goal: I plan to save $1,300 to start my emergency fund by 12/31/2019.
Calculate Your Net Income
Make a list of all your sources of income and how much you bring home daily, bi-weekly, or monthly. The frequency will depend on how you ultimately set up your budget tracking. Make sure the frequency is consistent. For example; you don't want to track one income daily and the other bi-weekly.
Create a List of Your Monthly Expenses
Track everything you spend and your bills; both fixed and variable expenses. You will also need to know when your bills are due. This step is a very important part of budgeting. You do not want to find out later that you forgot to include your nail appointments and realize you no longer can afford it because you didn't add it in the budget. If you don't know what these expenses are, print out your bank statements for the last 3 months and/or save your receipts. Be sure to include an Emergency Fund.
Outline What to Pay and By When
Once you have your income and expenses figured out, you need to map out what needs to be paid and by when. This is where that frequency comes into play. The frequency you used should match this step. For example; if you are budgeting monthly you should have your total monthly net income and a list of all your bills due for that month.
Review Your Budget Monthly
Once you've created your budget, you should be reviewing it every month to see how you did. This is when you make some changes if you need to for the next month. If you couldn't afford some expenses, you either need to cut some or increase your income. Check out our Break the Paycheck to Paycheck Cycle Ebook to help you in these cases.
