Here at the Branded Daily Digest, we talk a lot about budgets. We’ve posted articles on how to live budget-friendly, different styles of budgets, eating on a budget, budgeting for couples, home decor on a budget, and more. But we haven’t yet broken down exactly how to write a budget, until now. Whether you have never written a budget or the one you have isn’t working for you, this article will show you how to write one in ten easy steps. So grab a pen and a new notebook and start your journey to financial stability and happiness.
Step 1: Set Clear Goals
Before you begin writing your budget, it’s crucial to establish clear financial goals. Are you looking to build an emergency fund, save for a vacation, or pay off credit card debt? Having specific goals in mind will give your budget direction and purpose.
Write your goals on the inside cover of your budgeting notebook. You can list them by the amount of time you are giving yourself to achieve them. Make columns for one, three, and five-year goals. Be careful not to go overboard with too many goals – this can be overwhelming and unrealistic. If you have too many goals written down, select the most important ones for now. Once you get good at budgeting and achieve some of the short-term goals, you can add those extra ones back on.
Step 2: Gather Financial Information
To create an accurate budget, you need to know your current financial situation. Gather all relevant financial information. This includes your income sources (salary, side hustles, investments), regular expenses (rent or mortgage, utilities, groceries), and any debts (credit cards, loans). Get together paycheck stubs, bank statements, bills, and any other documentation that shows the money you have coming in and out. The more information you can gather, the more accurate your budget will be.
Step 3: Calculate Your Income
A clear and comprehensive calculation of your monthly income is the cornerstone of your budget. It enables you to allocate funds effectively and make informed financial decisions.
Start by calculating your total monthly income. Include all sources of income, but be sure to use your net income (after taxes and deductions). If your income is variable, calculate an average over the past few months and use that amount. Remember to include any additional sources of funds, such as rental income or investment returns. After you have calculated a monthly amount, write this number in bold along the top of a sheet of paper and title it “expenses”.
Step 4: List Your Expenses
After you figure out how much money you have coming in, you need to look at what is going out. To list your expenses, write down everything that you spend money on monthly on a blank sheet of paper. This includes bills, debt repayment, groceries, clothing, etcetera. If the expense is variable, such as entertainment or clothing, figure out an average monthly amount spent.
Step 5: Prioritize Essential Expenses
Now that you’ve listed all of your expenses, you can review them and identify which ones are essential for your basic needs and financial obligations. These may include housing, utilities, groceries, transportation, and debt payments. These should take precedence in your budget. Use a highlighter and mark the essential expenses.
Step 6: Create Spending Categories
Once you know what your expenses are and which ones are the most important, you can create categories for them. Organize your expenses into meaningful categories on the “expenses” sheet that you wrote your income amount on. Use headings such as Housing, Transportation, Food, Entertainment, Savings, and Debt Repayment. Assign each expense to the appropriate category to help you visualize your spending patterns.
Step 7: Track Discretionary Spending
Discretionary expenses, such as entertainment, dining out, and shopping, can quickly add up. Take a close look at these expenses and determine where you can make adjustments. While it’s important to enjoy life, finding areas to cut back can free up more money for your financial goals. After you decide which expenses can be cut back on you can change it to a lower amount on your budget sheet.
Step 8: Allocate Funds
Now it’s time to budget! Allocating funds will help you use your money in the best way possible and make sure you have enough for the important stuff.
On your categorized expense sheet, divide your income among the spending categories you’ve created. Start with essential expenses first. Once you see what’s left over, you can allocate funds accordingly. Be realistic and avoid overestimating or underestimating expenses.
Make sure to set aside some of your earnings for savings and investing. If feasible, save at least 20% of your salary. This might go towards an emergency fund, retirement savings, or other financial objectives.
Step 10: Review and Adjust
Creating a budget is not a one-time task. Life circumstances change, so your budget should be flexible enough to accommodate unexpected events or new goals. You need to regularly review your budget to track your progress and make necessary adjustments.
If this is your first time budgeting, sit down with your notebook every night and assess any spending you did that day. You can write it down on another sheet to help you assess again at the end of the month. Keeping close track of your spending will help you avoid overspending and will give you a real-time view of your budget.
Other Budgeting Tips
Learning how to make a budget helps you take charge of your money and reach your financial goals. By following these step-by-step instructions, you can create a budget that shows what you want to do with your money, what you value, and what you have. Just remember, making a budget is something you do all the time. While it does require effort and commitment, it puts you on the road to financial happiness. Before we close, here are some important tips and tricks to help your budgeting:
Use Budgeting Tools
There are numerous budgeting tools and apps available that can simplify the process. These tools can help you track your expenses, set goals, and visualize your financial progress over time. Examples include Mint, YNAB (You Need A Budget), and Personal Capital.
Writing a budget is only the first step; sticking to it requires discipline. Avoid impulse spending and refer to your budget before making financial decisions. Over time, disciplined budgeting will become a habit that contributes to your financial well-being.
When creating a budget, it’s important to be realistic about your financial situation. Avoid setting overly ambitious goals that might be difficult to achieve. Instead, focus on steady progress and celebrate small victories along the way.
Seek Professional Advice
If you find budgeting challenging or have complex financial goals, consider seeking advice from a financial advisor. A professional can offer personalized guidance and help you create a budget that aligns with your aspirations.
Maintaining a budget can sometimes be tough, especially when faced with unexpected expenses or temptations to overspend. Stay motivated by reminding yourself of your financial goals and the progress you’ve made. Visualizing the benefits of budgeting can help you stay on track.