Many people have never created a budget and are hesitant to do so because they don’t know how to create one, or they simply get overwhelmed by the thought of it.
Your budget does not have to be a complicated spreadsheet if you get overwhelmed with figures. Paper and pen worked very well for me when I first started, and I still use it in addition to using an app.
When creating a budget, there are four things you MUST always include.
Food: make sure you and your family have something to eat.
Utilities: keep your lights on and water running.
Shelter: you’ve got to keep a roof over your head.
Transportation: a way to get to and from work and other appointments. This could be either public or private transportation.
1. Determine your income
How much money do you bring home every month? This includes your income from your job, any side jobs or side hustles you might have, dividends, alimony, cash back etc.
2. List ALL your expenses
How much do you spend each month? What do you spend your money on? Include regular and irregular bills and expenses. Anything you spend money on, and any time money leaves your pocket or your account, you’ve got an expense. I suggest going through your bank statements from the previous year for the month you are budgeting for and writing down everything you spent money on. I’ve caught many irregular expenses that way e.g annual subscriptions, insurance payments etc.
3. Subtract your expenses from your income.
This is how you determine if you are going over or going under budget. If you spend less than you take home, depending on where you are in your debt free journey, you should save the difference or apply it to debt repayment. If you spend more than you take home, you will need to readjust your budget by reducing your expenses or by finding extra income. At the end of the day your income minus your expenses should be equal to zero. (Savings are considered an expense for this)
4. Track your spending
Once you’ve got your budget set up you can now track your spending. You can confidently tell your money where to go instead of wondering where it went.
Be patient!
It will take some time to get used to budgeting and to get yours running smoothly. The first three months are usually spent tweaking and adjusting figures and categories. Also remember that each month might look different as expenses might vary. Be sure to set up your budget before the month starts and don’t be afraid to make changes.
Happy Budgeting!