Let me clear something up right away, this is not the place where I talk about how important having a budget is. Chances are if you’re here, you’re ready to get this train rolling… you’re ready to start the quintessential part to excellent financial health. You’re here to build a budget.
What I’m here for, however, is the HOW.
HOW do you get this stinking thing set up to be beneficial for YOU?
I’ve got good news! By using the 7 steps listed below, I’ve helped several friends successfully establish their monthly budgets. And look forward to doing the same for you!
So if you’re ready, grab a calculator, cup of hot coffee, and follow along with each step. By step 7 you’ll have yourself a fully functioning budget tailored for your life.
Step 1| Be a Hunter-Gatherer
Before we even get to actually build the budget, be sure to gather up any documents giving you real numbers (none of this “I’d guess it’s around here,” we need cold hard facts people).
Documents to look for could be the following:
- Past 3 months Bank Statements (online banking is what I use… less paper)
- Side Hustle Transfers
- Bill Records
- Credit Card Statements
Some of these numbers could vary drastically month-to-month, if that is the case I recommend using a three month running average or the safest option.
Step 2| Calculate Money Coming In
Now grab a budget printable (like this here freebie) or plain piece of paper (a school notebook was where my first budget was born), and list ALL sources of income and the amount.
For some people this will be their monthly salary, for others each paycheck amount, still others might include rental property or side hustles. Just be sure to include everything.
Then, add ’em up!
Be sure to circle, bold, write in a metallic gold gel pen you total income. You’ll be needing that number again for Step 6!
Step 3| Calculate Monthly Expenses
Next, we do the same thing with expenses. Grab numbers from your past bills and bank statements you broke out in Step 1 (ah ha, see how we aren’t scrambling for all this information? It’s glorious!).
Personally, I like starting with my fixed living expenses or things that I have to pay. Things like:
- Car Payment
Then, I move on to my personal expenses or things that help make life comfortable but aren’t 100% necessary. These things could be:
- Eating Out
Remember to be super-ultra detailed! The more detailed you are in your descriptions the better you will know exactly where your money is going. As you get more comfortable setting your budget, you’ll learn what categories you need to budget for.
And just like your income, total these monthly expenses up and save for later.
Step 4| Set S.M.A.R.T. Financial Goals
To start, think about what your ideal financial situation would be. Is it to have no debt? Go on more vacations? Are you looking to save for retirement? Whatever your goal might be, think about what steps you’re comfortable taking to get there.
For Ethan and I, we want to abolish our debt. So, that’s our top priority.
Once you have a clearly visualized financial goal picked out, it’s time to set a S.M.A.R.T. Goal. Each letter stands for:
- S: Specific- get detailed here
- M: Measurable- how will you measure success
- A: Actionable- what actions to get there
- R: Relevant- in line with your top priority
- T: Timely- has a time-frame
If S.M.A.R.T. Goals are completely new to you, check out this quick video that breaks down each step for ya.
It’s okay if you have more than one goal! As you’ll learn in the next step, you may have the freedom to tackle both goals at one time.
Step 5| Merge Financial Goals with Expenses
Determine what you will (notice I didn’t say “can”) change to your budget to achieve your goal.
For example, if you are looking to get debt free how much extra could you apply towards accelerated debt payments each month? How long will it take to get there at that rate? Can you do more?
You already agreed this is a top priority. Let’s budget for it!
Add this additional payment under the expenses category and TAH-DAH… Your goal has just became a monthly commitment. Congrats! You are officially budgeting for the future.
Take a moment to compare your personal expenses and your financial goal commitment. Are the expenses skewed toward a higher allowance of personal spending? I challenge you to seriously think what personal expenses you can cut back on and transfer those funds to make higher financial goal contributions.
Or hey, you might be able to add another financial goal with that saved money!
After all that thinking, write down your final financial goal commitment under the Expenses category, and find your new Total Expenses.
Step 6| Subtract Expenses from Income
We’re almost there! All that is left is plug your numbers into this formula:
MONTHLY BUDGET = TOTAL INCOME – TOTAL EXPENSES
Have you found your number? Great! Here is how to interpret your results.
Congratulations! You are bringing in more money than you are spending each month. You have some wiggle room to reanalyze your expenses to see where you can improve and really go after your financial goal! By no means is this a free pass to go wild, but you’re heading in the right direction to achieve your big financial dream. Keep at it!
Good Ole Zero:
You are spending as much money as you bring in each month. While it’s good you’re covering what you have to, you have no wiggle room for any surprises. And surprises, my friend, do happen. Go back to your income or expenses and see what you can change to create a little more gap. There are several side hustles available to increase income or smart hacks to decrease expenses. Search around, you’re sure to be positive in no time!
Uh-Oh… You are spending more money than you are bringing in each month. You’ve got some opportunities to discover within the budget we created. First, take a good long look at your personal expenses and tighten the reigns as much as you can there. A super simple way is to make sure you never pay late fees (I even made a freebie to help you out)! Do some research on how to simplify expenses or limit grocery spending. Limit entertainment and unnecessary shopping to a minimum. You might also find it beneficial to couple decreased expenses AND additional income until your budget is positive.
No matter how things turned out, you can take pride in knowing you just completed your first budget and have a game plan for what you need to do next to reach financial success!
All that is left is…
Step 7| Implement, Check, and Adjust
You now have created your budget! The thing about budgets, though, is that they are always changing. Life happens, seasons change, priorities rearrange.
Through all this change be sure to keep checking and adjusting your budget at least each month (I even check mine once a week to make sure we’re on track).
If things aren’t where they need to be, adjust somewhere and try something else. No budget is unable to be adjusted.
Remember the commitment you made towards your financial goal. Be sure to include all family contributors on this journey with complete transparency. Only by working together can your goal be accomplished and successes be celebrated!
I hope you continue to strive towards stupendous financial health! Feel free to reach out to me with questions and successes, as I said I love helping people start out on a strong financial journey and that includes you.
It would mean so much if you shared the love and shared this article for others looking to build a budget!
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