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Creating a Budget Step by Step


Budgeting can be a sore subject because it’s often associated with limitations, frustration, boredom, or a lack of freedom. Although you may have a negative mindset when it comes to budgeting, it can be a useful tool to help you spend money intentionally. Think of budgeting as a plan for your money, allowing you to control where your money goes. Creating your own budget means you can choose how to spend your money. Read on to learn the steps to creating a personalized budget. 

Step One: Income 

Start your budget by listing the money you make in a month. Income is any money you earn. This could be from a full-time job, side jobs, a small business you own, parental income, etc. Be sure to list any money coming to you, even if it is from a birthday card or an annual bonus. Once you determine all your income, you’re ready to look at your expenses.  

Step Two: Expenses 

Next, make a list of your expenses. Expenses cover both your needs and wants. Some necessities you may be responsible for are your rent or mortgage, food costs, transportation costs, and utilities like gas and electricity. Additional expenses could include insurance, contributing to your savings, debt payments (if you have any), subscriptions or memberships, entertainment costs, and any other spending you plan to do. 

Step Three: Do the Math 

After listing your expenses, you’re ready to perform your calculations. It’s essentially simple subtraction. Deduct the total of your monthly expenses from your monthly income. The number leftover is your budget for the month. Is the number positive? If so, you’re making more than you’re spending each month. Did you break even, meaning your expenses are the same amount as your income each month? If so, you’re living paycheck to paycheck. If your number is negative, you’re spending more than you’re making. You may be relying on credit cards to make up the difference or maybe you’re receiving money from family or friends to cover your expenses month to month. If you’re living paycheck to paycheck or your initial budget is negative, read on for tips to break out of those money cycles. 

Step Four: Track Your Expenses 

Now that you have your budget, take some time to see if there are adjustments you can make, especially if you’re spending more than you’re making or breaking even each month. Are there subscriptions or memberships you can cancel? Are there things you no longer need or want that you can remove from your budget? Take some time to see what changes you can make that align with your spending and savings goals moving forward. In addition, continue to track your expenses. Set up a time each week to see how much you spent and what you spent on. This habit will help you adjust your budget month to month as needed. 

If you find you’re living paycheck to paycheck or are in the negative even after adjusting your expenses, looking into additional income options may be helpful too. Do you have a special talent or something you enjoy doing that could make you extra money each month? Maybe you could offer up your photography skills for family portraits or events. Another example would be using your experience with students to become a tutor. If you have your own vehicle, you could earn additional income by driving for a ride-share service or delivering food or groceries. Another option is selling items you no longer use or offering a service like babysitting, dog sitting or cleaning homes. 

Step Five: Update Your Budget Monthly 

Based on your spending habits and what expenses you have each month, adjust your budget. You may choose to update your budget monthly or adjust your budget each time you get paid. Factor in things that may only occur during certain months such as routine car maintenance, school expenses, spending on birthdays or holidays, travel expenses, etc. It’s important to keep an eye on what you spend so your budget is accurate — an inaccurate budget is not an effective tool. Do your best to include as much detail as possible in your budget to ensure it works for you. 

Following these steps will help you create a budget that enables you to spend the way you want. Developing a budget that works for you may take time, but once you find what works best for you it will help you move closer to reaching your financial goals. Being aware of your spending and saving helps you make informed decisions, allowing you to make an effective plan for each month. Try it out today! 


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Content By: Ever Green