Making a Budget: A Step-By-Step Guide

Writing a budget for the first time (or even the third!) can be a daunting task.  There’s a lot of numbers, expenses to remember, and you might not even know where to start.  I promise you that it will get easier and that it’s not as difficult as it may sound!

As a general rule, you will want to plan on creating a new budget every month.  It’s a nice thought that you can make one budget and it will last you for several months, but that’s honestly not realistic.  Every month is different in terms of utility bills, birthdays, holidays, and so on.   Even though a budget might be similar, it is rarely ever the same.  

If you are married or share finances with a partner then I recommend that you create a budget together.  Building budgets together helps with improve communication.  Plus, when you just want to quit and spend all the money, your partner can help keep you in check (I’m totally the spender in our marriage).

Step 1: Calculate your monthly net income

The first step to writing a budget is to know exactly what you bring home each month.  The money that you bring home after taxes and insurance is your net income.  It will be the amount that is deposited into your checking account.  If there are two incomes in the family, then add both net incomes together to determine the family net income.

Step 2: Calculate your expenses.

This is the part of budgeting that requires more time and energy.  Sit down with a pen and paper and list out all of your expenses for the month.  These should include:

  • Rent/mortgage
  • Utilities (electricity, gas, water, cable, phone, security system)
  • Medical bills
  • Transportation costs (car payment, gas, car repairs, toll tags)
  • Groceries
  • Restaurants
  • Personal Care (clothing, hair care)
  • Entertainment
  • Debt payments
  • Childcare/daycare
  • Gifts
  • Savings

Step 3: Review and Total up your expenses

Before you total up all of your expenses, review your budget and make sure you didn’t miss anything.  Did you forget any anniversaries?  Birthdays?  Don’t forget about budgeting for birthday parties that your kids are invited to!  Consider looking back at your bank statement from the previous month to make sure you have covered all your bases and you are not forgetting an expense.  Once you are sure you have covered everything, total up all your expenses.  




Step 4: Zero Based Budget

When you total your expenses, it should be equal to your income.  This is called a zero based budget (net income – expenses = zero).  If you have money left over after you total up all your expenses, then assign it to a category (such as savings).  If you don’t have enough money to cover your expenses then you need to determine where you can make changes in your budget. What category can you take money out of?  When I face this issue I usually take money out of restaurants, entertainment, or personal care.  

Step 5:  Focus and Reflect

Keep your budget  in a visible place throughout the month to focus on your goals.  If you put your budget in a binder and don’t reference it throughout the month, you are more likely to make unnecessary purchases.  Track your spending throughout the month to make sure you are not overspending.  At the end of the month, it is time to reflect over your purchases and expenses.  Did you overspend in a certain category?  Did you have a lot of money left over in another category?  If so, make adjustments for next month.  Read about 10 items that you might be missing in your budget HERE.  Then, set new goals for the upcoming month.  Do you want to make a large purchase or put extra money to savings?  Write these goals down! 

Making a budget can take several months to get used to.  It took us a solid three months to feel like we had the hang of budgeting and predicting our expenses.  Expect that there will be mistakes and room for improvement the first few months.  And if you feel like you’re failing, just stick with it.  In time you will be budgeting with ease and controlling your money instead of your money controlling you!



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