3 Easy Steps to Create a Budget

When thinking about getting your finances in order, it can be overwhelming. There are so many aspects to personal finances. Paying off debt, investing, saving, insurance, taxes, etc! Where the heck to start? The best thing you can do to bring awareness to your financial health and start taking control of your money, is to create a budget. If you've never had a budget, not to worry! Creating a budget can be very simple, and once set up, doesn't need to take a lot of your time or energy to upkeep. Here are 3 simple steps to setting up your first budget.

You may find it easiest to start in an excel sheet, you may want to write this down on paper or you might want to start with an app. It doesn't matter how you start- just that you DO start! I started using an app & now i use excel because it is easy to lay out my plan & deduct expenses from my income. Its personal preference, just find a method that works for you and stick to it!

Before you start building a budget- you'll find it beneficial to track your expenses. Doing this before you start working on a budget will allow you to have greater insight to your spending habits, and thus build a more sustainable, realistic budget. Check out this post to see how you can track your expenses.

1. Determine your Budgeting Cycle

In this first step you need to determine what you would like your budget cycle to be. I find it easy to have bi-weekly budget cycle that aligns with my paycheck that comes every other Friday. I feel most in control creating a budget knowing exactly what my income is and exactly what bills take place within that period.

2. Determine your Income

If you have multiple paychecks that fall within your budgeting cycle, do your best to sum up what you believe your total income will be. In my budget, I use my income as the dollar amount that gets deposited into my checking account. This means that I do NOT account for any deductions taken out of my paycheck before I see it (like taxes and retirement contributions). I find it easiest to plan my budget with the dollars that physically come into my hands.

3. Assign your Income a job

I like to first start with prioritizing what money I would like to put in savings / investing / debt payoff. In order to determine these amounts, I like to reverse engineer my goals. For example if I have $0 in my Emergency Fund and I want to hit a $2k goal in 5 months, then I know I need to contribute $400 each month. If I am doing a biweekly budget I know that I need to out $200 each budget cycle. The reason I like to start with assigning my income a job in this category is to keep these goals prioritized. Of course, our goal is to build a realistic and sustainable budget, so we may have to come back to these goals & adjust them (it's kind of like a guess and check!) to make the budget work. But for now, let's start here.

Secondly, let's assign our income a job for our bills.

-Rent / Mortgage Payment
-Utilities
-Gas
-Groceries
-Insurance
-Emergency Savings Fund

At this point you have determined your income, and then deducted your goals (savings, investing, debt payoff) as well as our monthly bills. Lastly, we will need to assign our money to our remaining categories that we have identified we spend money in from our spending tracking.

You may notice that after accounting for all your expenses you have no money left for anything else!! Well, this is not realistic & that's why I mentioned that my approach turned out to be a bit of a guess and check. Here is how we can adjust:

The first option is to take a closer look at your "Needs". Is there opportunity to save any money here? Maybe at this point you realize that your rent payment is a little out of your means, and there is an option to find something cheaper. Perhaps you realize that you can start shopping for groceries smarter and save a little money there. While I encourage you to take a deep dive, and be honest with yourself about what you can really afford- I also want you to be realistic! Don't cut back to $50 a month for groceries just to have room elsewhere in the budget- because that's just not gonna happen and now you've set yourself up for failure.

The second option is to determine how you could make a little more income! So often we think about how to save, cut back, be frugal!!! While I agree that is great- I believe it is also important to shift from that thinking to asking yourself how you can MAKE more money! There are many ways to bring in a little extra income- just do a quick google search of "easy ways to make extra money"

The third and final option is to adjust your desired debt payments or savings/ investing goals. I really encourage you to make this your last resort! But, again we want to be realistic and set ourselves up for success. If you were not able to cut anywhere else, and truly can't find a way to make some extra money, then we need to adjust our timeline and come up with a lower target goal.

Continue with the "guess and check" until you have a reasonable amount to plan for the fun stuff! Always remember to make paying off high interest rate debt, an emergency savings fund, and investing a priority.

At this point you should have zero dollars of your income left to budget! Each dollar of income should have a job in the budget. Maybe you found setting up a budget to be a little difficult, that's ok! Building a budget is a never ending balance of figuring out what works for you. But once you get going, you'll realize that your awareness will basically allow you to predict what your spending will be each month. You'll also realize that having a budget allows you to have so much more control over your money. Each month you are telling your money where it will be going, instead of feeling like it is controlling you. And who doesn't want that?!

I wish you the best of luck setting up your budget- be sure to connect with me on Instagram @littlemissfinance and send me a message letting me know how budgeting is going for you, or any other questions you may have!