Welcome back to the Master A Budget Series! We are now on Day 8. Yesterday, we talked about The Best Apps For Better Budgeting; today, you will learn about The Basic Steps Of Budgeting.
Let’s dive in.
Are you ready to start and create a budget? Are you overwhelmed? It can seem complicated at first – how do you categorize everything? What about expenses that fluctuate or aren’t monthly?
The best thing to do is to take a step back and start from the basics. Budgeting can be simple and also can be complex.
The earlier you start, the sooner you will be able to understand your family’s finances. Don’t worry if you mess up the first or the second time; the most important thing is you are learning.
No two budgets are alike, but they both start with the basics. As you continue budgeting, your family budget will evolve.
Now, download this basic budget template (no opt-in required) and follow along to create a budget.
Basic Steps Of Budgeting
1) Figure Out Your Net Income
First, figure out your net income for each month. This means your income minus taxes, insurance, 401K deductions, and so forth. If you are self-employed, subtract estimated taxes, insurance costs, retirement account savings, etc. At this point, you just need predicted numbers.
Don’t forget your spouse’s income as well if you are married. Also, if you have earnings from side hustles, include it in your income.
2) Find Out Your Expenses
Next, figure out your monthly expenses. If they vary, figure out an average by looking at the last three to six months’ worth of expenses. For instance, if your electric bill was $150 last month, $140 the month before, and $175 the month before that, then you can estimate a monthly expense of around $155 for electricity. Alternatively, you could take the highest amount, $175, and go with that.
It’s a good idea to keep your categories as general as possible while still preserving clarity. Otherwise, you might get confused or overwhelmed by all the “hair-splitting.”
For example, instead of having “food, paper products, drug items, etc.” as categories, you can lump all those expenses under “groceries.” Items like “pet supplies” can be their own category, but you might want to include vet bills in that category.
In this table, apply what you learn on the series Fixed and Variable Expenses, start with your fixed expenses and then followed by the variable expenses.
In this table, you will put in your savings plan on an emergency fund, retirement plans and other savings plan that you have.
This table will house all your sinking funds. Go back to the series Emergency Fund and Sinking Funds to get an idea on what should be included in your sinking funds.
You will fill in this table with all the debts that you have except your mortgage. It can be a credit card, student loan, personal loan, etc.
The summary will give you a clear view of how the month went, if you overspent, you stayed on your budget or you saved some money. You will simply deduct the total expenses from the income.
3) Track Your Expenses
Now that you have your budget completely filled in, it’s time to get to work. Every dollar that you spend, you have to write it down. Keep your receipt. At the end of the week, categorize them.
Doing it every week will make it easier for you at the end of the month. This task can really be tedious so this is where your budgeting apps come in. Budgeting apps make tracking your expenses.
I use EveryDollar for tracking my expenses. My husband has it also on his phone which makes it easier when we are not together and he needs to run errands.
The actual expenses are the real number that you spent on that category that month. Every time you make a payment of a bill, fill in the box. Some of the categories like grocery or dining out, you will have to wait until the month is over until you can put in your actual expenses. If you plan to use budgeting apps, it will track your expenses for you as long as you are putting in your numbers.
I am a pen and paper kind of girl so although I use EveryDollar, I still go in at the end of the month, copy the total of my expenses from each category and put it on my budget template.
4) Stop and Look
At this point, stop and take a look at what you’ve got so far. Are your expenses greater than your income? It’s time to cut back significantly or find another source of income (or both).
5) Set Goals
Now that you have an idea of your finances look like, it is time to set goals. Do you want to pay off debt? Do you need to save for an emergency fund?
6) Update You Budget
Budgeting is not set-it-forget-it. One of the budgeting skills you need to develop is to evaluate your budget every month and make adjustments.
There you have it! Now you’re well on your way to a workable budget!
As I have mentioned earlier, you are going to make mistakes and it’s ok. No one got it the first time. Budgeting is a learning process, the more you do it, the better you get at it.
Do you have a budget yet?
Now that you know the Basics Steps Of Budgeting, come back tomorrow and I will share with you What Makes Budget Healthy.
If you haven’t yet, download the Master A Budget Workbook to practice what you will learn from this series.
Related Monthly Budget Articles:
- Signs That You Need A Budget
- Budgeting Goals
- Best Apps For Better Budgeting
- Components Of Budgeting
- Percentages and Categories For a Personal Budget
- Beginner’s Guide TO A Biweekly Budget