How to Create a Budget

Posted: September 3, 2017

Creating and maintaining a personal financial budget is essential for successfully managing your finances. Although it may seem like a daunting task, it doesn’t have to be. With a little patience and planning, you can create a successful budget to help you reach your financial goals.

Here are some key steps in creating a budget that will help point you in the right direction.

Know how much money you make each month.

This is what your budget will be based upon, so it is important to know exactly how much money you have coming into your household each month. Include all sources of income, such as take-home wages from work, child support, alimony, commissions, and bonuses.

Track your spending.

Don’t estimate when it comes to this step. You can’t realistically create a budget unless you know how much you spend each month and where you spend it. This means going through bills and receipts from the last few months to find out exactly how much you are spending. This will take some time. Never fear though. There are some useful tools to help you with this step, such as www.mint.com and www.youneedabudget.com (YNAB). These apps will do the hard work for you and help you out along the way.

Prioritize your expenses.

Of course, all living expenses should be taken care of first. This includes mortgage/rent, utilities, insurance, and any other set bills you may have. Don’t forget to include irregular bills, such as car tags, property taxes, and so on. As you work through your expenses, you may need to make some hard decisions on what is most important to you and your family.

Use cash for the extras.

After you have determined how much you spend each month on living expenses, you must then decide how you are going to spend your miscellaneous money. You may spend it on clothes, date nights, family fun, or pampering. This will all depend on your family’s wants and needs. Because it is easy to overspend on these categories, it’s a good idea to use cash. Put a set amount of money in an envelope for each category. Then remember, when the money is gone, it’s gone. You can’t spend more.

Let your family have a say.

When it comes to miscellaneous money, it is important to let your family have a say in where the money is spent. Have your family members make lists of their needs and wants, and then prioritize the lists together. This will help cut down on all of the “I wants”.

Set goals and reward yourself.

It is important to set goals for your budget. Know what it is that you are saving money for, whether it’s sending the kids to college or retiring early. Don’t stop at long-term goals; it’s good to have short-term goals as well. For instance, set a goal of staying on budget for the month. If you achieve that goal, reward yourself with something special such as a movie or a delicious treat.

Be flexible.

You will likely not be able to create a perfect budget on the first try. It’s okay to tweak your budget here and there to make it work for you and your family. If it doesn’t work, don’t give up on it. Just understand that it is a work in progress and needs time to evolve into a budget that works for you.