Budgeting in 5 Easy Steps
- bryceallenfinancia
- Mar 11
- 5 min read
Updated: Mar 12
The budget gets a bad rap for being boring or restrictive to an individual’s freedom. However, budgeting is not just for the nerds who love spreadsheets and numbers.
A budget is crucial to winning with money. It is the roadmap to your financial future. It is you telling your money what to do and knowing where it is going.
Without a budget, your money will be like herding cats – it's hard to tell how many you have, let alone trying to get them all going in the same direction, and some are bound to get away.
A budget can help you build good financial habits by showing you what your weaknesses are. For instance, have you ever had those extra subscriptions you forgot about, or the extra few hundred dollars spent on restaurants, or the trip to the grocery store when you were hungry? We’ve all been there, but a budget will help you know how that is affecting your financial goals and, by default, your goals in life. This means that a budget is freedom and ease of mind, which can give you permission to spend or an excuse to use the powerful word “no.” So, if you have never created a budget before or want to make a better one, this 5 step guide will help you get started.
List your Income
List your income for the month. If you get paid weekly, bimonthly, or simply once a month, make each paycheck its own line. This includes any side hustles, freelancing or, frankly, any cash you expect to bring in during the month – no matter if it's regular or not. For those of you that work hourly, commission-based, or have an irregular income, simply take your lowest average that you would expect per paycheck. This will help prevent you from running short on income for your expenses, and anything more is just a pleasant bonus.
List Your Expenses
List and itemize your expenses for the month. Start with the 4 most crucial items first: housing, transportation, food, and utilities. You can have these be main categories and add subcategories, or just make them their own category. In general, the more you can break down into specific items, the better, since you can keep track of where your money is going more easily.
Next, go down the list of fixed expenses in order of priority. This could be things like tithing, debt, insurance, child care, savings, phone bill, etc. In other words, those things that are the same every month – going from essential to least essential. It can be a big help to pull up your bank statements to make sure you do not miss anything.
For any expenses that are not monthly but quarterly, biannual, or annual, a good idea is to create a sinking fund, where you take the total cost and divide it by 3, 6, or 12, respectively. For instance, if it's an annual expense, this will give you the amount you should put aside every month to pay for that once-a-year item. Yes, this includes birthdays, Christmas, or anniversaries.
Once you’ve covered the essential items, plan for the miscellaneous nonessentials, such as entertainment, personal spending, or general “fun” money. Plan for all these items as if you can afford them because the next step will tell you if you can. Remember, our goal is to live within our means to achieve our goals!
Subtract Expenses from Income
Now the insightful part. Subtract your expenses from your income. You want it to be zero! This means that every dollar in the month has a job – from paying the mortgage to eliminating debt to saving for retirement, every dollar needs to be put to use. Now, if you are in the negative, adjust your numbers until you get to zero, but start with the nonessential wants. If you are in the positive, don’t go on a trip to the Bahamas quite yet! Put the money where you need it, especially if you are in debt.
The sooner you are out of debt, the more discretion you have to go on that dream vacation.
All party pooping aside, just be intentional with where your money is going, and you’ll be off to a great start! This step can be scary and overwhelming depending on what you are expecting to find, but either way, it is good news because now you know what you can change moving forward.
Expense Tracking
This is where the proverbial rubber (your life) meets the road (your budget) and where the real habit forming happens. By tracking your expenses throughout the month, you are able to see whether your life is realistic with your budget or your budget is realistic for your life. What do I mean? Well, depending on whether you are a spender or a saver can make a difference on whether your budget is realistic. If you are a saver, then maybe only budgeting $100/month for groceries isn’t realistic because you’ll always go over in that category. If you are a spender, then you might have to be a little creative on how you live your lifestyle – such as, instead of going out to eat with friends, have them over for a potluck.
Regardless, tracking your expenses will help keep you on track and on budget, helping you know how the financial month is going. You might have to move some money around in the budget to make it work and tweak some line items, but that's okay. The month will not always go as planned, and it can sometimes take 3 months to really get the numbers in the budget to work. What's nice about tracking your spending throughout the month is that you know whether you are sticking to the plan and whether you can afford takeout after that long day of work.
Repeat
Give your budget one last look and balance it as best you can at the end of the month and start a new budget before the next month. Set a date or day of the month, such as the last Monday of every month, so that you can be consistent with setting your budget. Take the previous month’s budget and use it as a template to build your next month’s budget. Learn from the current month and see where you can improve and make your budget more accurate. Look at the next month and see what is coming up. Are you traveling to see the in-laws or is there a birthday that month? Whatever it may be, try to anticipate anything that might change up the budget from last month.
Creating your first budget may be a lot of work, but it is worth the effort. After that, it's just tweaking.
Budgeting can seem intimidating and a hassle, but by going through these steps month after month and seeing the power and progress of being intentional and in control of your money, you will see why budgeting is necessary for building a foundation of wealth and financial peace. Whether you use paper, a spreadsheet, or a budgeting app, the important thing is to budget.
Ready to take control of your finances and build a solid future? Let’s work together to create a budget that fits your goals. Click below to schedule your free consultation!
