How to Create a Budget
Listen - we know budgeting can kill your night-out plans. Saving, watching what you spend, and anticipating emergencies may seem tough, but ultimately, a budget will make your life way easier and cut down on your stress. You’ll finally be able to relax knowing you can handle next month’s bills.
“Why do I need a budget?”
The hardest part about budgeting? Getting started. But it’s totally worth it! Budgets are one of the most important pieces of managing your money, especially when your wallet is a little lighter around the holidays or major life events like moving. Here are a few of the top benefits:
You’ll know exactly where your money is spent each month.
Knowing how much extra money you have after you pay your bills makes saving easier.
Having emergency savings will make you more prepared for unexpected expenses.
You’ll be able to do fun things without the stress of worrying how you’ll pay for them.
Building a budget (and sticking to it!) is obviously easier said than done, so here are some real-world tips and tools to help you create your own.
Figure out where your money is going.
Trying to keep track of how much money you’ve spent each month is almost impossible without tracking it (we can order pizza again, right?). Before you start to build your budget, you need to know historically how much you spend each month on certain things. There are a few ways to do this, but the easiest way is using a budgeting app like Mint or YNAB These will help you see where your money is being spent and where you may need to adjust. Track your spending in one of these apps for a month before you set your budget. (Go ahead and start today!)
Decide on your financial goals.
After you’ve tracked your spending, decide on a few financial goals you want to start working towards. Each person’s situation is different, so it’s important to set goals based on your circumstances. Some people haven’t built an emergency fund, so saving for that is a top priority. Others are focused on paying off that credit card or student loan debt. And some of us just want to save for a major purchase or put some money away for retirement. No matter what your goals are, deciding on them will help guide your new budget!
Create your budgeting plan.
This is the tough part, but trust us — it’s doable and totally worth it.
Step 1: Look at your spending history.
After you’ve tracked your expenses for the month, you’ll be able to see how much you spent on things like groceries, gas, eating out, buying clothes, and emergencies.
Step 2: Evaluate your fixed costs.
A fixed cost is something that costs you roughly the same amount of money each month. These are things like car insurance, phone bills, wifi, cable, and other subscription services. Utilities usually fluctuate each month, so just average those out to see how much you spend on power, water, and natural gas.
Step 3: Plan for your goals.
After you have a good idea of how much you normally spend, look at your goals. Where can you cut back to save a little more ? Maybe you can eliminate a streaming service, spend a little less eating out, or keep your old phone a little longer. Think about the amount you’d like to save each month and get excited — you’re about to start meeting your goals!
Step 4: Set up your budget.
You can set your budget categories in a spreadsheet, but the easiest way is through a budgeting app. After you’ve considered your fixed monthly costs, you can set realistic budgeted amounts you’re willing to spend on things like groceries, gas, eating out, and clothing. These categories are pretty personal, but budgeting apps let you customize what works for you! Just because you’re on a budget doesn’t mean you can’t be flexible and do what makes you happy. It’s all about balance.
The most important thing about a budget is sticking to it, and it can be big relief to know exactly how much you can spend on certain things. Whether it’s a night out with friends or a new pair of jeans, you can check your budget and know for sure that you can afford it. Make sure you stick to the plan - your future self will thank you!
Don’t forget to have fun!
Sure, cutting back is important. But a budget needs to account for the things that make life fun! You won’t be able to sustain your budget if you’re always eating ramen noodles and never get to do the things you love.
By the way, if you have young kids, there are actually lots of free or cheap things you can do on the weekends to keep them entertained and save money. Make sure your budget is realistic it will much easier to stick with!