5 Easy Steps to Create a Budget
Start your journey to financial freedom
Anybody will tell you that a budget is essential to good financial health. But how do you get started?
When I started budgeting, Google was my first stop. I quickly realized just how much information is on the internet regarding budgets. Who knew there were THAT many different types of planner?! Unless this is the first article you’ve stumbled across on your search for creating a budget, I’m sure you know what I mean!
Now that I have gotten the hang of budgeting, I wanted to share some tips that can help you get started with creating your budget. All of these tips are free and easy to do, so there’s nothing stopping you from beginning your journey to saving!
Track your expenses
In order to create a budget, you have to get a realistic idea of how much you are currently spending. Being realistic about your expenses will set you up with a better chance of sticking to your budget.
This can be a good time to make sure you know what you’re spending money on. Maybe you thought you cancelled that newspaper subscription months ago but they’re still charging you! I can’t tell you how many times I have forgotten about an auto-renewal until it’s too late!
Bank statements are a good starting point for this step. Get an idea of how much you normally spend each month and go from there.
Pinpoint any outliers
Did you go to a concert last month? Or did you buy new tires? When looking at your spending, make sure you are aware of these irregular expenses. By irregular expenses, I mean any costs that are not a regular occurrence each month.
Put these expenses to the side for a bit. I will touch on what to do with them in the next step.
Create specific categories
Now that you have a rough idea on how much you spend each month, we can start making the budget! The best way to do this is by separating your expenses into categories.
A few categories I use in my budget include housing, transportation, and food. Under my transportation budget, I list everything I spend money on for my car. This includes gas, maintenance, insurance, and a small amount of “just in case” funds.
Remember those irregular expenses we talked about? This would be a good time to make a separate category just for those costs. If you know you have a big trip or life event coming up, put it into the irregular expenses category!
You can create as many or as little categories as you’d like. Make it functional for you!
See where you can cut down on spending
Now this is the trickiest part for some people. Look at areas where you are spending more than you’d like, and figure out some ways that you can decrease your spending in that category.
Are you spending a lot of money on takeout? Try limiting yourself to eating out only twice a week. Have a lot of subscriptions you don’t use anymore? Now would be the time to cancel them! No more forgetting about that pesky auto-renewal.
In certain categories where I struggle with going over budget, I will round down to the nearest whole number. For example, if I spent 137 dollars on clothes last month, I would plan to spend 130 dollars the next month. By doing this, I am gradually bringing down my expenses in that category. Each month I can lower my budget until I reach the number I want to be at!
Finalize your budget!
Now that you know how much you can afford to cut down on in each category, you’re ready to finish your budget!
Your first month’s budget probably won’t be perfect, but that’s alright; budgeting is a learning experience. Keep an eye on your expenses as you go through the month to see how well you are able to stick to your budget.
There you have it! A realistic budget to start your financial journey. Stay on top of your expense tracking, and you’ll be a budgeting master in no time!
