College | September 17, 2019 | Paul Chun
4 simple steps to creating a budget
A step-by-step process on how to create your own personalized budget.
What you'll learn
- Why you should create a budget
- How to calculate the amount of money you're saving
- What your finance goals are
When it comes to achieving financial security and stability, a budget is one of the greatest tools you can have – it puts you in control of your finances and helps you save money for major goals. The trick is to figure out a way to track your finances that works for you. The following steps can help you create a budget.
1. Calculate your earnings
The first step in creating a budget is to identify the amount of money you have coming in monthly. Look at your salary and determine your net income. Your net income is how much money you make after any deductions like interest and taxes. This is the number you should use when creating a budget.
2. Pay your bills on timeTrack your expenses
Create a spreadsheet with a list of everything you spent money on and how much each item costs throughout the last month. This includes necessary fixed payments such as rent and bills, plus any other variable expenses like your gym membership or streaming services. Subtract your monthly expenses from the sum of your monthly income.
Your variable expenses may change from month to month such as groceries and gas. This is an area where you might find opportunities to cut back. It’s helpful to keep track and categorize your spending so you know where you can make adjustments. Doing so will help you identify what you are spending the most money on and where it might be easiest to cut back.
3. Set financial goals
Before you start sifting through the information you’ve tracked, make a list of all the financial goals you want to accomplish in the short and long-term. Short-term goals should take no longer than a year to achieve. Long term goals, such as saving for retirement, may take years to reach. Remember, your goals don’t have to be set in stone, but identifying your priorities before you start planning a budget will help.
If you want to reach your goals more quickly, there are ways to cut costs. Make a nice home-cooked dinner instead of eating out. Look for discounts when you’re shopping at the grocery store. These changes may seem insignificant, but you might be surprised how much they can help you save in the long run.
4. Review your progress
Check in to see how well you did at the end of each month. If you went over budget, it’s time to make some changes. But if you spent less, congratulations! Be sure to come back to your budget at the end of each month and make adjustments, like if you’ve paid off debt, increased your earnings, or accomplished a goal.
After a few months of sticking to your monthly budget you will become an expert at managing your own money.