Now that you’ve learned to track your expenses, it’s time learn how to create a budget. It feels a little strange at first, especially if you’ve never used one before, but creating and sticking to your budget doesn’t have to be a painful process. This is a crucial step in gaining control of your finances
Grab your expense tracker and a calculator and let’s get started!
Think of your budget as carved in stone, as your financial goals change so will your budget. Your budget will help you keep yourself accountable for accomplishing your goals.
Determine your monthly income
To create your budget, you’ll first want to start by figuring out what your total income is for each month. This includes your paycheck and any side money that you can count on being consistent. Add it up and write this number down. When creating your budget, your total should not exceed this number.
Decide how much you will spend on each category
Next, you’ll want to look at your expense tracker. If you haven’t done this already, take your expenses for the last three months and divide them into categories; include any yearly or quarterly expenses as well. If you need help creating categories, start with the basics: bills (water, electric, rent, etc), groceries, and gas. Then, based on your spending habits, create additional categories that fit your needs. For example, our budget includes categories such as doctor visits and eating out.
After you’ve created your categories, you will want to decide how much money you need in each budget. Before you start budgeting for shopping or anything frivolous, you need to make sure your bills are paid and that you have adequate money for food and gas. Budget for your necessities first!
Create Sinking Funds
If you don’t already know what a sinking fund is, it’s a fund where you periodically set aside money to put toward a large expense. I currently have about 6 or 7 of them, but the idea is to put a little bit of money away each month until you have enough for a vacation or even for quarterly bills when they are due. I use sinking funds in my budget for holiday gifts and all of our vacations for the year.
Congratulations! You have completed a huge step by creating a budget. Make sure you still keep track of your bank account and bills go out on time. Review your online accounts and expense tracker weekly (at least) to make sure you are on budget, and if necessary make adjustments.
Check back next Friday for How to gain control of your finances: Sticking to your budget.