Are you interested in budgeting, but don’t know where to start?
I completely understand. There is so much budgeting information available and it can be overwhelming to intake all the information. On top of that, then you have to decide what information to use and how to implement it. After going through all of that, budgeting doesn’t seem worth it.
Start with the Basics
If this is the situation you find yourself in, I recommend just starting.
Create a simple budget that includes your income and your expenses. The main goal of your budget is to make sure your expenses do not exceed your income.
Don’t worry about the extras that a lot of budgets have. Keep it simple. Over time, you can enhance your budget to include additional features that up-level your finance game.
The most important thing to remember is a budget is a guide. It allows you to determine how you want to spend your money. A budget is important no matter how much money you make. It helps you to reach your short-term and long-term goals because it makes you more aware and intentional of how you are spending your money.
To create your budget, you can pull out a pen and paper or get on Excel.
How to Create Your Budget
Step 1. Document your Monthly Income
First, start your budget by identifying how much income you will receive that month. List out all of your expected paychecks. Include your payday, the source of income, and the amount you expect to receive.
Once you have listed all your expected paychecks, add the amounts together and this provides you with your overall anticipated income for the month.
Step 2. Document your Expenses
Next, you will determine how you will spend your income.
Essential Expenses
First, start with listing your essential expenses, the date your bills are due, and the amount. Essential expenses are bills and expenses that must be paid every month to maintain your basic standard of living.
This includes:
- Rent/Mortgage
- Utilities
- Renter’s or House insurance
- Car payment
- Car insurance
- Cell phone payment
- Internet
- Groceries/Household items
- Gas
- Personal care
- Minimum Debt Payments
Once you identify these expenses, add them together so you know how much you spend on your essential expenses.
Then, subtract the total of your essential expenses from your income. This let’s you know how much more money you have to play with.
Income – Essential Expenses = Discretionary Spending
Discretionary Funds
The money that you have remaining is called discretionary funds. This is the money you use to save, pay extra towards debt, invest, and for fun. I have not really determined a science on how to determine how much you should allocate to savings/extra debt repayments and fun.
In my situation, I prioritize savings and debt repayment over fun because I am really committed to paying off my student loans.
It is up to you how you decided to split up your funds. If you don’t have an emergency fund set up, I do recommend starting with that. It is recommended you save up to 3-6 months in your emergency.
After you have entered in all your expenses, every dollar of your income should be accounted for. This is called a zero-based budget. It ensures that you leverage every dollar that you make and prevent money from just slipping through your hands.
Use Your Budget as a Tool
A budget is one of the best resources on your financial journey. It is a tool that gives you control how you spend your money. No one else controls how you spend your money, only you. Many times when we don’t have a budget, we don’t know how we are spending our money. It has a tendency to disappear and then we struggle to figure out why we don’t have nay money at the end of the month. With a budget it eliminates that feeling and gives you clarity.
If you need a budget to utilize as you start budgeting, click below to download a printable budget or Excel spreadsheet. I hope that this will be a useful tool for you. We are all trying to uplevel our finances. If you have any information that I have missed, let us know in the comments.