budgeting

Intro to Budgeting: What is a Budget?

A budget is a financial outline designed to measure and guide your income and expenditures for a certain period of time, such as one month, a quarter, or a year. With an understanding of the budget basics, you can track the amount you’re making compared to what you’re spending and saving.

Why do I want a budget? Consumer.gov says making a budget can help you determine your spending plan and in turn, show you where you should limit your spending and what you can afford to spend more money on.

There are many ways you can maintain a budget — with a spreadsheet, paper and pen, or through a budgeting app.

Whether you’re new to managing your own finances, never learned how to budget, or are tired of living paycheck to paycheck, this post is for you. In our Budgeting 101 guide, we’ll go over some budgeting basics, show you how to create a budget, teach you how to avoid common budget-related mishaps, and ultimately, give you a budget calculator and some budgeting tips to create a budget that’s efficient and functional for your lifestyle.

Need to know how to create a budget ASAP? Read end-to-end for a comprehensive course in Budgeting 101.

How to Create a Budget: 5 Actionable Steps

To plan your budget, you’ll need a few key pieces of information. With these basic components, you’ll have a foundation for your budget that you can tweak as the months go by and as your financial circumstances change. To get you a step closer to your financial goals, let’s go over how to create a budget step-by-step.

Calculate your monthly income after taxes

An accurate monthly income is the cornerstone of a successful budget. Without figuring out how much money you actually have in your wallet, it’s pretty hard to allocate funds towards saving, spending, and settling outstanding debts. But calculating your monthly income takes a little bit more effort than glazing over your monthly paychecks.To find out how much you’re actually earning, you’ll need to do a little bit of simple math—don’t worry, we’ll walk you through the entire way.

Identify fixed and variable expenses

Calculate your monthly income after taxes

Once you have a clear picture of how much money you’re actually working with each month, it’s time to figure out how you’re spending it…or how you should be spending it. There are two main types of expenditures you need to account for as you build your budget: fixed and variable expenses. The difference between the two is that fixed expenses tend to cost you the same amount each month while variable expenses…vary.

Set savings and debt payoff goals

Calculate your monthly income after taxes

Set savings and debt payoff goals

As you saw in step two, if you have student loans and credit card balances, you’ll want to attribute part of your monthly budget to paying them off. Each month, allocate a certain amount to these monthly payments. The sooner you pay off debts, the less interest you’ll pay overall, and the closer you are to meeting your greater financial goals.When creating a personal budget, include these types of debts into your planning:

Student loans
Credit card debt
Mortgage payments
Auto loans
Business loans
Personal loans

If you’re all caught up on your bills and want to want to stow away funds for retirement or save up for a new car, it’s helpful to establish concrete goals, then break them down into achievable bite-size chunks. Having trouble coming up with realistic, meaningful financial goals?

Record your spending

Track your budgeting progress, review, and revise

Set savings and debt payoff goals

You know that feeling when you’re checking out at the grocery store, the cashier announces your total, you swipe your card, and by the time you’re loading your grocery bags into your car, you realize you didn’t even register the total amount you paid. It’s a concerning, out of body experience—but we’ve all been there.This is why tracking your spending is so important. It’s easy to become complacent about the amount of money you’re spending and end up with revolving debt ruling your finances. Depending on the budgeting method you choose—budgeting app, pen and paper, or online budgeting tool—you can pick a way to record your spending that best suits your lifestyle.

Track your budgeting progress, review, and revise

Creating a basic budget is a huge financial victory. It helps you ensure you can cover your expenses and reach for exciting milestones, like buying a house or paying off your student loans. As you continue to budget, make adjustments as you see fit. Your income, expenses or lifestyle might change, and it’s important to ensure your budget keeps working for you and your future.Set up a budget schedule and make it a point to review your budget on a regular basis—each week, every month, or at least every quarter to see if any major changes, or milestones have taken place. Not only will this help you recognize and celebrate your successes, but it will also encourage you to reevaluate and tailor your strategy as needed.

Key Takeaways

Track your budgeting progress, review, and revise

Creating a budget is really as simple as following these five steps:
- Calculating your take-home pay
- Estimating your expenses
- Setting savings and debt payoff goals
- Recording your spending
- Tracking your progress
To find the right budgeting method and tools for you, consider compatibility, ask around, and try out different options
Avoid budgeting pitfalls by preparing for unexpected circumstances and tailoring your budgeting strategy as needed