Welcome back to the blog!
Today we are continuing with the 5 Easy Steps to Gain Control of Your Finances series. We will be providing easy tips to help you create a budget. If you missed the first step, you should go read Know you numbers and come back after. Knowing your numbers sets the foundation for your finances and it’s something you should NOT skip.
By the end of the this post you’ll know what a budget is, you’ll be able to determine how often you should budget your money, and you’ll learn how to create your own budget.
What is a budget?
A budget is an estimate of revenue (income) and expenses for a specific period of time. Some people budget their money on a monthly basis, bi-weekly/semi-monthly, or on a weekly basis depending on how often they get paid and what works for them personally.
What is the purpose of a budget?
The purpose of a budget is to know where your money is going. Bethebudget.com says,
The purpose of a budget is to plan, organize, track, and improve your financial situation.
In my opinion, having a budget it’s essential whether you want to gain wealth or simply have control of your finances. Everyone should have a budget.
If you’re just starting out and you’re new to budgeting, I would suggest that you create a budget based on how often you get paid. I have budgeting templates that you can print out and use if you are the type of person who prefers to use paper and pen.
Some people prefer to budget electronically using excel spreadsheets, or apps like Mint, YNAB, etc. I am a paper and pen type of person so I like to write out my budget and see it on paper every month, although I will admit, apps do make it easier to check your numbers while you’re out and about or even if you have a joint account with a partner.
Preparing your budget
In order to create your budget, you need to know your numbers. Who do you owe money, what’s the monthly payment, the due date, etc. If you don’t know you numbers, check out the first post in this series. I also created this printable to make it easy for you to keep track of your numbers.
To make your budget you’ll also need to have an estimate of how much income you bring in for a pay period.
- insurance (renter’s, home owners, medical)
- home essentials like paper products (paper towels, toilet tissue)soap, laundry detergent, etc
- childcare (if applicable)
Check out this list of 75+ budgeting categories and see which ones you should add to your budget.
You can also review your previous bank statements (past 3 months) or credit card statements to see how you spend your money and determine the categories that best apply to your life. Sometimes your banking apps categorize your spending so that’s another place to check for budgeting categories.
How to create your budget
Write in your expected income in the income section. (If you purchased a template from my store, be sure to review the template instructions).
Determine how much would be left over at the end of the budgeting period by subtracting your expenses from your income. Is this amount negative or positive? Our goal is to have a positive number, but don’t worry if it’s negative right now, remember, I’ve been there.
Review your actual numbers at the end of the budgeting period (pay period) to see how you really spent your money. Are there any categories you need to adjust (add or remove)? Do you need to adjust the budgeted amounts (increase or decrease) for next month?
It important to continue budgeting so that you consistently know where your money is going. Now you should know what a budget is and how to create one for yourself. You should also know what your numbers are (debt, income, living expenses).
Start thinking about your financial goals, where do you want to be financially in 3 months, in 6 months, in 1 year. You’d be surprised at how quickly you can change your finances once you have a goal in mind AND plan in place so that you actually take action to reach your goal.
Stay tuned for the next post in the series!
- income – money that comes in
- expense – money that goes out
- fixed expenses – expenses that remain the same amount every month (rent, insurance, subscriptions)
- variable expenses – expenses that fluctuate monthly (utilities, fuel, eating out, some credit card expenses)