Creating a budget is actually very simple to do and can have a very positive impact on your finances and your life. The hardest part is getting started, but first I’ll address what a budget is.
What is a budget?
A budget is a financial guide you create for yourself or your household. It shows where you are and where you want to go financially. It tracks all your income and spending. Your budget will track what you need to save to reach your financial goals, and the amount of money you can spend.
Maybe you want a budget to help reach a financial goal or maybe you want one to help eliminate credit card debt.
How do I get started?
There a two ways to create a budget. The first way is the old fashion way, where you create and track all you’re expenses yourself. This way consists of sitting down with a pen, paper, and an excel spreadsheet opened up on your computer — then listing all your financial assets, income, expenses, and debt. Making a budget yourself is great if you stick to it and continue to maintain it and update it.
The second way is to use a budgeting service or software. This way is much easier than doing it yourself. Budgeting software allows to link all of your financial accounts in one place and they will update as your accounts change. A free budgeting service that I use and really like is Personal Capital.
Income Verses Expenses
The first thing you’ll want to do is compare your income verses your expenses. This is something they should have taught us in grade school but usually do not — so we’ll cover it here. Luckily, it’s pretty simple and easy to learn and understand.
So here it is…
Income > Expenses = Good! Income < Expenses = Bad :(
That’s really it. You just want your income to succeed your expenses. If you can get to the point where your income is higher than your expenses you’ll be on the road to wealth. Anyone can do this and it doesn’t matter what your income level is.
By creating your budget you’ll begin to see where all your money is going and begin cutting excess spending and expenses.
Budgets Are Fun!
The hardest part about making a budget is getting started. The easiest way to get started is to start!
Don’t worry, we’re going to make a budget together — step-by-step and have some fun along the way! A budget won’t only simplify your life and your finances, but you’ll also find a budget very rewarding in the short-term and long-term.
So let’s get started!
1. Find and gather all your financial statements. Investment accounts, bank statements, retirement accounts, bills, loans, other debts, etc. Any documents or information regarding finances, income, and expenses. The more information you can find the better.
2. Document all sources of income. This includes income from your job, side jobs, and/or income from self-employment income. Then record your income(s) as a monthly net amount after taxes.
3. Record all your expenses. Make a list of any expenses you plan on having within the next month. This should include anything and everything, such as loan payments, car payments, mortgage payments, auto insurance, utilities, entertainment, etc.
4. Decide whether an expense is fixed or variable. Place your expenses into one of two categories, fixed or variable.
A fixed expense is an expense that is reoccurring or stays the same each month. These are expenses that are either necessary for living or expenses that you are held accountable to pay. These might include a car loan, mortgage payment or rent, credit card payments, cable and/or internet bill, etc. These expenses are generally long-term and will stay the same.
A variable expense is an expense that changes on a month to month basis. These expenses can include entertainment, gas, groceries, going out to eat, shopping, etc. These are expenses that we’ll be able to make immediate adjustments to.
5. Find the total amount for both income and expenses. If your income is greater than your expenses your off to a good start! You can then use your excess money towards investments, retirement, or to pay off debt. If your expenses are higher than your income don’t worry you’ll just have to make some adjustments.
6. Make adjustments to your expenses. Now that you have found and listed all your expenses it’s time make all your income and expenses balance one another. In other words, you want your income budgeted for a specific expense.
7. Review your budget regularly. It’s important to go over your budget regularly or at least once a month. Each month take some time to compare your income and expenses from the current month to the income and expenses from the previous month. You’ll then be able to see where you made improvements and areas you still need improvement on.
So many people take the time to make and set up a budget but then neglect to follow through with their budget or update it on a regular monthly basis. To make budgeting easier, you can simply make your budgeting automatic by using a budgeting program to automatically update your budget and progress each month. I use a free online service all Personal Capital and it literally only takes a few minutes to make and set up an account.
Educate Yourself Even Further by Reading these Great Books on Budgeting
If you know someone who recently graduated high school or college this book would make a great graduation gift! Colleges require students to take many courses like math, science, and English but do not require students to learn how to manage their money. This book will teach what schools don’t, how to manage personal money and build wealth.
2. The Total Money Makeover: A Proven Plan for Financial Fitness — By: Dave Ramsey
This book is by far one of my favorite money management and personal wealth books. The author illustrates into words how to make a winning budget and build wealth through a proven financial plan that has been used by millions of Americans.
If you feel like you finances and life are getting or have gotten out of control you’ll find this book both helpful and inspiring. This book teaches us how we can have a full and meaningful life with less and talks about the importance of having a budget.
Budgeting Tools, Software, and More!
Personal Capital lets you manage and track your personal finances for free. Get a personalized outlook of your financial situation and goals.
FutureAdvisor lets you create an account for free and will examine your investment accounts to see if you’re on track with your financial goals. They’ll then provide you with recommendations on how to improve and align your accounts to meet your goals.
I have a couple bank accounts, two of them being local Credit Unions near by my house I bank at. The other one is my Discover account, my online bank account. I use the Credit Unions close to my home for their convenience and use Discover for its high-yield savings interest rates.
I invest a lot of my money, but I also like earning a decent amount of income from the money I don’t invest. I found that Discover’s online savings account has higher interest rates than most other banks.
More Great How-To Guides
- Steps To Building Wealth
- Receive Free Money to Create an Account with this Online Broker!
- Simple Steps to Creating a Financial Budget
- 5 Ways to Save Money on a Low Income
- Financial Goals and Objectives
- The Essentials of Banking and Saving
- Manage Your Personal Debt
- Get Your Finances Organized for Free with Personal Capital
- Money Market vs. Certificate of Deposit (CD)
- How to Payoff Student Loans in Nelnet
- Term Life Insurance vs. Permanent Life Insurance
- Unconventional Investing
- Move Your Mountain – Raise Money Online
- Buy Checks Online and Save Money
- 16 Ways to Earn Extra
- 10 Legitimate Ways to Make Money At Home
- The Benefits of Creating a Side Income
- Review: Rich Dad, Poor Dad – Unconventional Financial Thinking
- 4 Great Tax Preparation Software – Free Online Tax Filing
- The Creation of the Income Tax and the Robin Hood Theory
- Beginners Guide to Bond Investment
- Investing in Mutual Funds
- Investment Basics – Investing in Stocks
- Introduction to Investing, Investment Basics
- Tax Preparation – Last Minute Tax Deductions
- How To Invest Like Warren Buffett
- Higher Interest-Rates Make Banking Online Attractive
- 8 Reasons Why Index Funds Rock!
- Time is Valuable – The Cost of Trading Time for Money
- FreshBooks – Online Accounting Software – Review
- Discover Bank – High Yield – Online Savings Account Review
- 5 Tips for Investing
- Four Great Stocks for Dividends