Budgeting Unlocked: 6 Steps to Create a Budget

Have you ever sat down at the end of the month and asked yourself, "Where did all my money go"? Same. Consumer.gov gives us a friendly reminder of what we can sometimes forget: creating a budget could help you plan your spending, avoid running out of funds before your next pay check, and aid in saving.¹

Despite how annoying it can be, budgeting can and does make a positive impact. In fact, Debt.com surveyed 2,654 people and 85.63% replied that budgeting has helped them get out of or stay out of debt.² If that sounds like a stat you want to be a part of, then let's get started with an easy-to-follow guide that will get your budgeting skills flexing using a spreadsheet or pen and paper.

1. Track what you're already spending

Let's be real, creating an accurate budget starts with taking a close and honest look at your current spending habits. The 2018 National Financial Capability Study by FINRA Investor Education Foundation reports 19% of individual's households spent more than their income.³ Whoops. Finding the balance between your income and what you spend is paramount to good budgeting.

• Select a month, and start on day one.
• Spend as you normally would. You want accurate details for an authentic budget.
• Keep your receipts for or write down every purchase (yes, every cup of coffee and microbrew counts!)
• Put together a spreadsheet or grab a pencil and paper to log how much you spent at the end of the month (or, as I like to do, track as you spend throughout the month).

2. Categorize your expenses

Now that everything is nicely listed in front of you, organize your purchases by category like housing, utilities, groceries, etc. For me, this step shed some light on where my hard earned money was going (talk about going overboard on food delivery apps. I had no idea!)

Then, total up how much you spent in each category for the month. The goal is to track everything to know how much you currently spend and get an idea of how much you need to cut/shift.

Pro tip: Mint.com features more category ideas for your budget.

3. Estimate your monthly income

What you have to spend for the month is based on what you're bringing in that month (make sure you're tracking your take home pay - so what you make after taxes are deducted). So add up ALL of the income you expect to earn each month (include alimony, child support, etc.) If your income changes from month to month, no worries. Just base your monthly income off of what you expect to bring in on average. Want to be more diligent? Base it off of what you'd earn in a bad month if you don't want to risk overspending (this is the route I would recommend).

4. Compare your spending and income

Once you have an estimate of the amount you're spending, subtract your total expenses from your total anticipated monthly income.

Example:

$2,200.00 - $1,407.00 = $1,050.00

5. How did you do?

This is where it gets real. Where did you land? Is your final number negative? Zero? Positive?

Negative Number: A negative number is bad news. This means you’re spending more than you earn, so consider adjusting your spending.

• Is an unlimited cell phone plan really necessary?
• Did you hit the bar too many times?
• Maybe get rid of the cable TV and find a less pricey streaming option?
• Are drive-thru's and restaurants a weekly or daily occurrence? Meal planning allows you to have a specific list of ingredients to buy at the store and will eliminate the need for takeout or drive thru meals.
• Coupons, for groceries or any other products, can be a great opportunity to save a few bucks—but only if you’re going to actually use the products. If you can save a lot but the item isn’t useful to you, it’s money wasted.
• Check out our 8 Ways to Save Money article for more tips!

Zero: Nice work! You have enough to cover all your necessities and expected expenses. However, your goal should be a positive number.

Positive Number: Awesome sauce! This means you have extra money. Here’s how to use it wisely.

• Pay down/pay off outstanding debt.
• Set up a savings account.
• Look into retirement savings.
• Start making extra principal payments on student loans in addition to regular payments.
• Start that emergency fund you’ve been hearing so much about!

Pro tip: If you run out of entertainment money, don't borrow from groceries. Instead, adjust other areas in your budget.

6. Make adjustments and repeat

The first couple of times you’ll find that budgeting will be trial and error, but after a while, you'll be a pro! And along the way, you’ll be bulking up on financial literacy which will help you make good financial decisions in the long run.

You’re at the starting line, getting ready to take those first steps toward budgeting. And, I’m rooting you on! If you’re more tech-driven, you can keep the above methods in mind but take a look through these free budgeting apps!