Creating a budget means that you will become more efficient at spending and will have a tool to reach your financial goals.
A monthly budget allows you to plan for how you’ll spend and/or save your money each month.
The first question you need to ask yourself before creating a budget is the following:
- Why would you like to have a budget?
There are different reasons why people start a budget, and the reason why you would like to have a budget will influence how you go about budgeting.
Examples of goals behind a budget can be saving for retirement, for a down payment of a house, for a vacation, etc.
On my previous budgeting-related blog post, I go over reasons why you should have a budget. It might help you become clearer on why you should create a budget —> Why We Should Have A Budget
After you decide to create a budget, and are clear about your reasons and goals, you need to do the following:
- Figure out your current income.
If you are working one job and are an employee, this step will be really easy. But if you work several jobs or are self employed, this step will be a little more complex.
It is important to be really clear about how much money you are making because that way you will know what number or income to base your budget around or how much money you will have available to spend, and if you are trying to reach a savings goal, you will know how much you can spend to reach that goal.
Also, it needs to be your after-tax income.
- The next step is to track your current spending.
On this step, you realistically analyze how much you are spending on different categories in your life so you can create a realistic budget that fits your lifestyle.
After you are done categorizing where all your money is going every month, you need to do the following:
- Choose your goal or goals so you can decide how to design your budget.
Some of these goals again may include saving for retirement, a vacation, a down payment for a house or to start a business.
- The next step is to figure out how much money to save to reach the goal or goals you are trying to achieve with your budget.
This means that you also need to decide how long or how much time you have available to reach that savings goal.
- After that is done, you need to plan how much you would like to spend on each budget category such as rent/mortgage, utilities, groceries, etc.
Keep in mind that some of your expenses are going to be fixed or the same every month and some are going to be variable. Variable expenses have room for immediate savings. You can also save on fixed expenses if you decide to to make some changes and rent or buy a less expensive home or buy a less expensive car, for example.
- The next step is making sure your income and expenses/savings equal.
This means all of your income is accounted for and budgeted for a specific expense or savings goal.
- Finally, you have to choose where you are going to put your budget together.
There are many avenues you can take to store your budget. You can manually create it over a printable or on an excel spreadsheet or budget model or on an app.
I have included below a printable for you to download that will help you create a budget. I am currently creating an automated excel budget model file and will post it for sale (at a reasonable price) asap.
Click here to access the free file below.
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- Walk Your Way To Happiness and Better Health
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