Introduction – Budgeting will change your life!

Budgeting can be daunting! But even if math was not your favorite subject, you can (and should) budget!

Consider sitting down to budget “me” time, because it will help prevent stress later. Tracking income and expenses, helps you see and adjust where your money goes, so you can meet your financial goals.

If you’re new to budgeting, or trying agin, don’t worry. Here are 10 steps to get you started:

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Step 1: Calculate your income

The first step to building a budget is to figure out how much money you have coming in each month. This includes your day job, side hustles, and any other regular sources of income.

I use my paycheck to start budgeting, since it gives a more realistic view of how much money I actually have in my hands. Your salary is higher, but taxes, retirement, health insurance and other costs are taken out before you get your money. are already removed.

Since bonuses are not guaranteed, I don’t use it in my planning. I usually have a plan for it though. 🙂

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Step 2: Discover where your money is going!

This step is harder! Pull together your bank and credit card statements and start calculating. It is critical to understand where you are spending money!

To make this easier, I use different color highlighters, so I can come back and quickly categorize:

• “Big” monthly items – rent/mortgage, car payments, student loans
• “Utilities” AKA medium expenses you can’t get out of – groceries, gas (home), gas(car), electricity, cellphone bills
• “Small” nice to have monthly items – Netflix, Kindle Unlimited, restaurants, etc.

You may need to to look-up bigger annual or 6-month expenses, such as car insurance or property taxes, then divide them per month.

I make categories for these in my excel, so I can come back and edit if they change. Modeling spending less or giving yourself a larger budget is easier to do this way. You may add a little more for a guilt-free coffee budget or put a cap on eating out after realizing you buy lunch out everyday.

You can also do this with an app. In the long run, I highly recommend a budget tracking app like Credit Karma (it is 100% Free), but find manually marking my budget keeps me more accountable.

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Step 3: Mark your nice to have expenses

Once you know how much you’re spending, you need to categorize your expenses. This will help you see where your money is going and identify areas where you can cut back.

For the remaining items on your statements, I highlight the following:

• “Small” regular nice to have monthly expenses – Netflix, Kindle Unlimited
• “Eating Out” – Everything food that isn’t groceries

Everything else is on the chopping block! If you notice high spending patterns such as clothes, shopping, etc. you can group these as well, but these are items you can set a budget target on and control. They are good to know and understand, but don’t get copied as a baseline into your budget.

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Step 4: Categorize & tally expenses

There are many ideologies on how much to spend on each spend category. The most important thing list and manage for the expenses important to you. Some common categories are:

• Housing
• Transportation
• Food
• Healthcare
• Utilities
• Childcare
• Debt repayment

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Step 5: Set realistic budgeting goals

Once you know where your money is going, you need to set realistic goals for your budget. This could be cutting back on spending, increasing your income, or both.

If you have financial goals, like an emergency fund or retirement fund, this is the time to assess if/how much you have to fund it.

It’s important to set goals that are achievable, so that you don’t get discouraged. Remember, once your budget is set, you can see how well you stick to it and always adjust as your life progresses and your goals (or income) change.

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Step 6: Make a plan

Now that you have your goals, you need to make a plan to reach them, some examples could be:

• Set-up automatic payments: Emergency Fund deposits, Retirement/Investment Accounts, putting money in a bill payment account
• Paying down high interest credit cards/debt (these can outpace most investment earnings)
• Planning to make lunch everyday to cut restaurant costs
• Finding a way to increase your income

With any plan, I suggest to start by ensuring your necessities are covered and then paying down any high interest debts before investing.

Automating this process really helps stick to the plan. With online banking, opening new accounts, for say an emergency fund is really simple and they can even gain interest! Keeping this money separate from your normal funds means you are less likely to break the rules and spend any money from the account before an emergency!

Providers like SoFi even offer a high yield savings account, checking account, and investing, all in one platform.

Make plans, but the simpler the better. If your plan is too complicated, you’re more likely to fail.

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Step 7: Adjust your budget as needed

Your budget is not set in stone. As your life changes, your budget will need to change too. This might mean increasing your spending on certain categories, or decreasing your spending on others.

It’s important to review your budget regularly and make adjustments as needed.

For the extra savings and expenses that aren’t automated, one popular way to manage and track is called “Cash Stuffing.” This is where budgetary funds are placed, in cash, into allocated envelopes. Then only that money is available to be spent. If you want to give this a try, there are nice looking budget binders like this one. Since it is on Amazon, it should arrive quickly and you can start ASAP.

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Step 8: Results – Track your progress

One of the best ways to stay on track with your budget is to track your progress. This will help you see how you’re doing and identify areas where you need to make adjustments.

You can track your progress by using a budgeting app, or by simply keeping track of your spending in a notebook.

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Step 9: Review your budget regularly

It’s important to review your budget regularly. This will help you make sure that your budget is still working for you and that it’s realistic. Hopefully, this will start to get fun as you see yourself making progress towards your goals!

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Step 10: Don’t give up!

Budgeting is so worth it in the long run and you will find a system and budget that works for you. Just make sure to stick with it and if you are struggling, don’t be afraid to ask for help. There are many resources out there.

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Conclusion

Building a budget is a great way to take control of your finances and reach your financial goals. Following these 10 steps will get you on your way to financial success.

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Bonus Tip:

After reading “How To Retire Early” I build my first epic excel budget based on the one from their website, it can be found here (look in the upper right, under the menu).