How to Create a Budget: 7 Steps to Ensure Your Success
Contrary to popular practice, checking your banking app every day to see what you have left is not the best way to manage your money. Discovering how to create a budget and stick with it will be one of your greatest financial wins.
What Is a Budget?
Simply put, a budget is a financial plan based on income and expenses that determines how you spend your money every month. It’s also a financial preparation that helps prevent overspending and unwarranted debt.
How to Make a Budget?
Make a budget that works for you by first determining your budget style. Do you prefer using a budgeting app, spreadsheet, or a good old-fashioned pen and paper? There is no wrong way; choose which method you’ll honestly commit to. Here are the steps needed to create a budget successfully.
1. Calculate Your Net Income
The first step in creating a budget is determining your net income. That means calculating every income source besides employment— rental income, royalties, interest, child support, freelancing, and side hustle money.
2. Determine and Subtract Fixed Expenses
Start by listing your monthly expenses and subtracting them from your total income. Then, grab your bank statements to access automated bill payments easily. These expenses should include mortgage/rent, utilities, car payments, health and automotive insurance, and cell phone bills. Don’t forget to account for tithing if you regularly give to your church or favorite charities.
3. Establish Individual Budget Categories
Now that you’ve determined fixed expenses assign your budget categories —housing, transportation, food, entertainment, medical, etc. You will experience fluctuation in some of your budget categories.
4. Track and Subtract Variable Monthly Expenditures
Keep the receipts! Track all spending throughout the month and adjust your budget accordingly. For example, if you see a movie, subtract it from your entertainment budget. Monitor and adapt for gas and food transactions. These are variable expenses, meaning they are not the same every month.
5. Set Spending and Savings Goals
Another essential step for how to create a budget is to set realistic spending and saving goals. Spending goals may include establishing a maximum allowance on what you spend on entertainment and canceling subscriptions until you achieve that figure. Adjusting spending habits to fit your budget is necessary, or you’ll never get financially ahead.
What are your saving goals? If you don’t set a savings goal, how do you prioritize saving money? It’s a necessary part of creating a budget that works for you. Regardless of contribution size, make a savings deposit with every paycheck.
6. Exercise Your Budget
What do I mean by exercising your budget? Put that plan into action! And just like when you miss a day at the gym and go back without throwing in the towel, when you break your budget, don’t abandon it entirely. Get back on track immediately and keep exercising your budget until it becomes routine.
7. Review and Adjust Your Budget Every Month
Creating a new budget every month a few days before the next month begins is best practice because your monthly budget will always be different from the previous month. While fixed expenses may remain the same, life happens.
Birthdays, holidays, and other seasonal expenditures occur. Life also hands you many unforeseen expenses, such as medical bills, emergencies, vet expenses, weddings, funerals, and other events, that will cause budget adjustments. Give yourself grace and exercise your budget until it becomes second nature.
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Elizabeth Ervin helps people embrace a change in money mindset to achieve their financial goals. After struggling for a decade as a single mother, consumed by the American debt cycle, she recognizes the value of financial education and lifestyle changes and aspires to motivate others to make those changes to obtain financial freedom. She heavily advocates for praying about and over your finances and speaking positive money affirmations to manifest abundance.
