Last updated Mar. 3, 2023 by Charles Zemub
I’m going to be real with you: budgeting sucks. It’s a pain in the butt and takes up a lot of time—time that could be better spent doing other things. But here’s the thing: if you don’t have your finances under control, you’re bound to end up in trouble.
Budgeting does not happen overnight, and it shouldn’t be taken lightly. It’s important for people to plan for their finances and set financial goals for themselves because one day, those goals might become a reality.
So below, we’ll walk through some easy steps to create your very own budget that will work.
Figure out your total income.
Step 1: Figure out your total income.
Total income is the amount of money you have to spend every month. It includes wages, salaries, bonuses, and interest from investments. It also includes any other money you receive from sources such as pensions, rental income, or child support.
Step 2: Get a free budgeting app that will help you track your spending habits over time to see areas where you could cut back on expenses or increase savings goals.
List all your recurring expenses.
It’s important to list every single expense that is paid regularly. This includes rent, mortgage, utilities, insurance, and other expenses like food, gas, or parking. Even if you pay for some of these things automatically via bank transfers or automatic payments from your checking account (for example, Netflix), make sure to include them in your budget so you can see exactly how much they cost each month. You may be surprised at how much money you’re spending on stuff you don’t really think about until it comes time to write out the check.
Add in your irregular expenses.
It’s smart to include your irregular expenses in your budget, so you can plan for them.
Some examples of irregular expenses:
- Gym memberships
- Car repairs or maintenance (e.g., oil changes)
- Cell phone bills
- Annual family reunion or reunion weekend
Create a flexible spending category.
One of the best ways to ensure your budget works is to plan for any money you’ll need that isn’t accounted for. This includes things like unexpected bills or yearly expenses.
You can do this by creating a flexible spending category that includes money you might want to save up for and then transfer over into another account when it’s time.
For example, if there was an upcoming trip you planned on taking with friends, but it wasn’t in your budget yet, this would be an excellent use of a flexible spending category since it’s not something that could be put into savings or planned-for in advance (like buying groceries).
The key here is knowing when these types of situations are coming up so you can put away enough cash beforehand without going into debt or putting yourself at risk financially.
You also don’t want to create a habit where every trip means dipping into savings; rather than using one big chunk of money right away, try setting aside small amounts each month until it adds up and then transferring them over all at once before booking anything expensive—that way nothing gets left behind unexpectedly.
Pay down debt
You know the debt is a burden. It keeps you from making smart decisions, like saving or investing. If your debt isn’t bad enough to cause undue stress, consider this a wake-up call: you should pay it off.
The first step is to identify how much you can afford to put toward debt each month and stick with that amount for at least two years (or until the debt is gone).
The next step is figuring out which debts have the highest interest rates and paying them off first—this way, once you’ve paid off one high-interest loan, you’ll be able to take that money and put it toward another one with higher interest rates until all of them are paid off.
You may need some help identifying which loans have higher interest rates; check out this article for more information on using credit score tools like Credit Karma or Credit Sesame to determine where you stand financially.
Set short- and long-term goals.
Once you’ve created a budget, knowing where you want to go is important. A good goal will help keep your focus on what matters most and help you make better decisions about spending your money.
Using the same format as your budget, write down three to six months’ worth of short-term and one year or more of long-term goals.
The goal should be specific and measurable—for example, “Earn $10K from freelance gigs by April 1st” or “Save $20K by February 2020 so we can quit our jobs and open up a restaurant.”
Goals should be written down for them to have power over your life; if they’re just floating around in your head, there’s no way for them to become real.
Revise, revise, and revise.
You’ve finally got a budget that works, but it won’t stay that way unless you continue to make adjustments. Just as your life changes over time, so should your budget.
If the money isn’t coming in as expected or is being spent faster than expected, there are ways to revise the plan and get back on track.
- If saving is low: Look at where money is going each month and see if there are areas where you can cut back (e.g., entertainment).
- If spending is high: Look for ways to earn more income (e.g., side hustle), then adjust the monthly budget accordingly.
- If all else fails: Start over with a new system from scratch.
It is important for people to plan for their finances
Before you sit down and make a budget, you need to know your financial goals. This can be anything from getting out of debt to saving enough money to buy a house in the future. Once you have identified your goals, it is time to create your budget.
Budgeting is not always easy, but it is important for people who want to plan their finances and set financial goals for themselves. It may take some time, but if done right, the result will be better than before because now we know how much money we spend each month or daily.
Budgeting is a necessary part of being financially responsible. When you’re making decisions about how to use your income, it’s important to consider all your expenses and goals so that you don’t get into financial trouble later on down the line.
Remember that there are no hard and fast rules when it comes to budgeting—the best thing for you is whatever works best for your unique situation.
How to make a budget
A budget is a plan for how you want to spend your money over the course of a month, quarter, or year. It will help you prioritize what’s important, cut out unnecessary expenses, and avoid going into debt.
Whether trying to save money for something special or make ends meet, making a budget is an important step.
Create categories: You should divide your expenses into different categories so that they can be easily tracked throughout the month—this will make it easier when it comes time to create a monthly budget later on. Examples of these might include “rent/mortgage,” “utilities,” “groceries,” etc., depending on what kinds of spending habits are most common for your household (birthday gifts don’t go in this category).
. Set goals: Before starting any kind of budgeting process, think about how much money you want to save up for specific things like vacations or car repairs – this way, if anything unexpected comes up along the way and takes some extra funds away from one area (like say rent), there won’t be any surprises about where those funds were supposed to go instead.”
How to prepare a budget for a company
The first step in developing a budget is to decide what you want the budget to accomplish.
If you want your budget to help you control spending, then the most important job of your budget is to categorize expenses.
The next step in creating a budget is determining your expected income for your budgeting period.
The last step in creating a budget is determining how much you expect to save during that time.
After all this work, the final step is keeping track of your actual income and expenses and comparing them with what you expected.
Frequently Asked Questions
What are the five basic elements of a budget?
A budget is a plan for managing your money over a specific period of time. It should contain the following five elements: income, expenses, savings and investments, debt payments, and cash flow.
Income – The amount you earn monthly through your job or any other source (like side hustles).
Expenses – Any costs related to living that occur every month (such as rent/mortgage payment) or on an irregular basis (like car insurance). In addition to these recurring expenses, one-time purchases happen less often but still affect your budget, like buying a new TV or replacing old furniture in your home office space.
These items should also be included in this section of the budget along with their associated cost information from receipts or other records indicating what was purchased and when it happened so that you can account for all of the money spent during each period covered by this document’s timeframe.”
What is a simple personal budget example?
A simple personal budget example is the collection of all your income and expenses. You can create a simple personal budget in two steps:
- Write down what you are spending money on right now, including things like rent or mortgage payments, groceries, utilities (electricity and gas), and so on.
- Then subtract any savings or investments from your total income to get your actual spending power for each month, week, or day.
How do you create a successful project budget?
A budget is a plan for the use of money. You can have a personal budget, or you can have a project budget.
A project budget is used to help you decide how much money you need to spend on your project and when you should spend it. It will also show you how much money you will make from your project so that if something goes wrong, the business won’t lose any more than they already have invested.
What does a budget include?
- Income
- Expenses
- Savings
- Debt
- Investments
A budget is a plan for your money. It includes your income, expenses, savings, and debt. Your budget helps you decide how to spend your income to build wealth and save for the future.
How does my budget work?
Your budget should be based on these factors:
- Your income. How much do you earn in a month? Can this be adjusted if necessary?
- Your expenses. What are your family’s living costs, and how will they change over time (for example, when children enter the picture)?
- Savings goals. Do you have a retirement fund or other savings goals to consider when creating your budget plan?
What is the budget for kids?
A budget is a plan for your money. It helps you stay on track with goals and priorities, like saving for college or retirement, paying off debt, and building an emergency fund.
A budget can also help you manage unexpected expenses like car repairs or medical bills. You’ll be better prepared for an emergency because you already have money in savings or another account set aside for unexpected costs.
