A Beginner's Guide to Creating a Budget


More than half of people living in the United States don’t use a budget to track their spending. Because of this, people don’t understand how much they’re spending, where their money is going, and how they can improve their finances.

The people who don’t spend time creating a budget aren’t limitlessly rich. They just don’t realize the benefits of budgeting strategies. And, they’re likely losing money because of it.

Keep reading to learn more about how to create a budget and how it can fit into your lifestyle.

1. Calculate Your Total Income

Income is a touchy subject. We don’t like talking about it and many of us don’t know how much we make because of it.

But, this isn’t going to work if you’re looking to make a budget.

You have to know exactly how much you’re bringing in. On top of this, you need to know all other income sources.

Income sources may include your main job, earnings from a side hustle, rental income, a partner’s job, investment interest, and more.

If you don’t make a consistent amount of money each time you get a paycheck, take the average of the last three months and use this as your total income.

Keep in mind that you may have to make adjustments in the future.

2. Calculate Monthly Expenses

Next, figure out and make note of all of your fixed monthly expenses. These may be things like phone bills, subscriptions, car payments, home payments, and more. 

Then, you can look at variable expenses. These are payments that may not be the same amount from one month to another.

This may include utility bills, gas, groceries, and similar expenses.

For these variable expenses, you should average the cost over the last three months. This will give you a good idea of the average amount of spending that you make within these categories.

If your spending habits change, you can always adjust this amount as needed.

3. Consider Extra Expenses

Apart from your regular expenses, you may have extra expenses. These are the things that you pay for but you don’t absolutely need. 

You could be saving for a vacation or wanting a new pair of shoes.

You need to consider these kinds of expenses in your monthly budget as well. In fact, you should use your budget to set a limit on the amount that you can spend in each category.

You may set a limit for clothes, a limit for eating out, and a limit for entertainment. This will help you be pickier about the things you’re spending money on. And, you’ll be able to save more money in the long run as you look at your budget before purchasing.

4. Compare Income and Spending

Now that you’ve listed out all of your income and your expenses to the best of your ability, it’s time to create your final budget. You’ll need to start by subtracting all of your expenses (definite and estimated) from your income.

Most people prefer to do this in a spreadsheet so they can easily calculate their remaining budget as they make changes.

When you’re adjusting your budget, you need to account for every cent you’re making. Whether you’re spending the money, saving it, or investing it, you should make a note in your budget.

At the bottom of your spreadsheet, you shouldn’t have anything leftover. If you do, you need to make an adjustment to your tracking sheet.

5. List Your Financial Goals

Now that you’ve looked at all of the basics behind your budget, you can start thinking about the changes you want to make.

Do you want to invest or save a specific amount of money? Is there a trip you’ve been wanting to take? 

Write down everything you’ve hoped to do with your money.

As long as you’re making SMART goals, you can work towards these over time. SMART goals give specific parameters for meeting goals, including timing.

So, you’ll have an exact way to measure whether you’ve met your goal by the time you’ve set it. And, you’ll be able to make smaller goals 

6. Explore Budgeting Methods

There are hundreds of budgeting methods out there. In order to make budgeting work for you, you have to follow and stick to the one that makes the most sense for your situation.

One of the most popular options is Dave Ramsey’s Zero-Based Budget, but this may not work for you. 

Shop around to see if there are specific budgeting sheets or systems that work best with your financial situation. You may need a budgeting sheet that’s more focused on investing, while your friend may need a budgeting sheet that’s more focused on paying off debt.

Your budgeting options should work for you in the long run so you’ll be more likely to stick to your budget.

7. Expand Your Budgeting Strategies

Now that you’ve created your budget and adopted a system that works for you, it’s time to get to work on completing your financial goals. Considering your current spending habits, you should identify various changes that you can make to get closer to meeting the financial goals you laid out earlier.

Do you need to invest more or spend less? Should you open a high-yield savings account? Are you looking to save more money for a future trip?

Whatever your goals are, you can make small changes over time to get to your end result. Don’t try to do it all at once.

If you’re trying to invest more, start by adding an extra 5% of your earnings to your budgeting category. Then, you can add more next month if you want to and are able to.

Get Started by Creating a Budget Today

Creating a budget is one of the best ways to take responsibility for your money. Rather than spending mindlessly, you’ll have more control over the financial decisions that you’re making. So, you can get more power with your money.

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