Building A Budget In 5 Simple Steps

Do you feel you’re constantly running out of money and living paycheck to paycheck? This is a stressful feeling that nobody likes. One way to help decrease those negative feelings is to track your spending habits and aim to stick to a budget. Creating a budget can seem overwhelming which is why we’re giving you this simple 5 step method. You will be a budgeting pro in no time!

1. Figure out your net income. This is the amount of take-home pay leftover after taxes. For most people, this will be your paycheck amount because your employer automatically deducts things like social security, taxes, 401(k), HSA, etc. However, if you are self-employed or working a contracted position, make sure to account for these to find your true take-home pay.

2. Track what you spend. How can you create a budget without knowing where your money is currently going? Track each and every expense you make. You will have some fixed expenses like rent, student loan payments, car payments, and you will also have expenses that vary for things like food, entertainment, and clothes shopping. Spend 30 days writing down everything you buy and splitting them out into categories. Some categories that are commonly used are:

  • Housing
  • Transportation
  • Utilities
  • Food
  • Insurance
  • Entertainment
  • Savings
  • Clothing/personal care
  • Miscellaneous

Once you have your basic categories down, you can also go a step further and split them out into things like home-cooked food vs restaurant food so you have a more clear view of areas that could be improved.

3. Set a goal. Now that you have your data, you can set your goals of what you would like to be spending each month. These goals will revolve around your variable expenses. For example, maybe you spent $750 on food last month, and a good portion of that was spent on luxury services like DoorDash and GrubHub. You could see that as an area that would be easy to lessen spending by making meals at home or picking the food up yourself. Whatever your goals are, make sure to write them down and make them SMART goals.

4. Evaluate how you did. Once another 30 days has passed, come back to your budget and see how you did. Did you overspend? Were you on target? Did you realize you neglected to include an expense category and want to edit your budget? Whatever the case may be, taking a look at how well you did or did not stick to your budget will guide you moving forward. You can adapt your spending habits based on how you stuck to your budget. If you overspent this month, try to reel it in next month. Overtime, you will find a good balance.

5. Stick with it. A lot of people spend five hours creating the perfect budget, they go over it one time after a month has passed, and then they forget about it. Don’t be like these people. Your budget does not have to take over your life. You’re not a terrible person if you accidentally blow it one month. Don’t let a moment of overspending turn into a lifetime. Use whatever data you acquire as knowledge, pure and simple. Make the best choices you can most of the time and aim to improve yourself and your spending habits over time. If you continue tracking your spending and sticking with your budget, you will be able to feel less stressed about your money situation and confident you will always have enough for your needs.