Don’t cringe, but a budget can help gain control of your money by making it easier to manage, save, and reach your goals. The trick is to figure out a way to track your money that is simple and easy to maintain. Many budgeting articles did not seem to work because I was so out of control with managing my finances. I could not pay my bills on time, ran out of money with each paycheck, and had to use credit cards to pay annual expenses. I had to start from the basics to get out of the cycle of overdrafts, late fees and constant worrying about money.
Keep reading to learn how to easily create a budget without stress and maintain it year after year. Follow these simple steps that will set you up to be able to pay yourself and be financially stable.
Step 1: Understand your expenses
You need to know where your money is going. Utilize your bank statement or online banking and review the prior month’s deductions.
Start with fixed expenses. These expenses recur each month, typically with the same amount and frequency such as mortgage payments, credit card bills, insurance, subscriptions, etc. Write these expenses on a calendar the day it is typically due.
Next, review variable expenses, these also occur every month but the amount is not consistent such as groceries, gas, and personal care items. This is a little trickier and need to review the past 3-6 months to determine the typical amount spent in this category. Write these in a list to add to your budget after the fixed expenses.
Step 2: Know your income
You need to know how much money is coming in to manage the fixed and variable expenses. Focus on your take-home pay, the amount of money you bring home after deductions. Paychecks are typically consistent in frequency and amount. Write on the calendar the typical day and amount for each paycheck received. This will help you review when you get paid and what bills are due with each paycheck. Then you can start to create your budget.
Step 3: Review income and expenses
This is the piece that most budgeting articles leave out. How do you manage when you are overwhelmed and living paycheck to paycheck? The solution is to create your budget around your paychecks and expense due dates, even dividing payments into smaller amounts if needed.
Follow these simple steps
- List each paycheck date and amount received.
- Write the fixed expenses that are due before the next payday.
- Subtract the expenses from the income. The remaining amount is for variable expenses, savings, and spending.
Example:You receive a paycheck on the 1st and 15th of every month and your car payment of $800 is due on the 10th of each month. List this payment under the paycheck received on the 1st.
Step 4: Divide Payments into smaller amounts.
Now you realize the money coming out of the paychecks is not balanced, or even worse, you can’t cover all the expenses before another paycheck is received. This is when dividing the payments by paycheck will significantly help you manage your money without worry.
Take that $800 car payment example. Divide the payment by 2, the number of paychecks you receive, making the payments $400 each paycheck.
Let me walk you through this process.
- When you get paid, either double the payment using money from your savings or pay the full amount.
- All future paychecks, you will send $400 to your car loan company.
Do this with all your bills over time to have a more balanced budget with more control and money for variable expenses.
Step 5: Review and adjust variable spending
Now that you documented and know the income and fixed expenses it’s time to review the remaining balance. This is the category where you can make adjustments to ensure you don’t overspend and have what you need for fixed expenses, save for emergencies, and achieve goals.
First, determine what is a ‘need” and what is a “want”. The “want” category is where you can make the most changes and the first area to cut costs. This does not mean you cannot spend money on things you want, you just may need to delay a purchase or save money.
If things still don’t add up, take a hard look at those fixed expenses and the “needs” category. Determine if these expenses are true needs and necessary. Do you need that subscription, can you find cheaper insurance rates, cell phone plans, etc.? These decisions may not be easy but can come with a huge trade-off in being able to pay off debts and put your money where you want to spend it.
Step 6: Track and update to maintain
Now that your budget is all set, you need to review it and your spending regularly. You may increase your income, pay off a debt, or expenses change. Whatever the reason you will need to get into a habit to review and adjust. Review your budget at least monthly and with every change in expense or income. Track your spending daily, this only takes a few minutes to sit down and document the variable expenses for that day. This also helps to keep you from overspending.
There are many tools you can use to help create and track your budget. The best one is the one you like and routinely will use. There are a lot of apps such as Mint, Goodbudget, and YNAB (you need a budget). I use good old paper and a pen in a notebook. Check out my favorite budget journal here >>>
Now that your budget is all set, you need to review it and your spending regularly. You may increase your income, pay off a debt, or expenses change. Whatever the reason you will need to get into a habit to review and adjust. Review your budget at least monthly and with every change in expense or income. Track your spending daily, this only takes a few minutes to sit down and document the variable expenses for that day. This also helps to keep you from overspending.
There are many tools you can use to help create and track your budget. The best one is the one you like and routinely will use. There are a lot of apps such as Mint, Goodbudget, and YNAB (you need a budget). I use good old paper and a pen in a notebook. Check out my favorite budget journal here.
Budgeting Tips
~Set up a separate checking account for future expenses-This is for the annual expenses such as property taxes, Christmas and holiday expenses, vacation costs, etc. Divide the total by 12, this amount is the monthly expense to add to your budget. Move the budgeted amount to the “future spending” account to save for the expense.
~Find practical ways to cut costs- small cuts can make big impacts to your budget to help reach your goals.
~Just one paycheck at time- Focus on sticking to your budget one paycheck at a time. Yes, this approach focuses on living paycheck to paycheck at first. It can take a long time to turn your finances around and starting with a paycheck. You can really begin to learn how you spend your money and developing a realistic budget that you will stick with. Actually sticking to a budget is the key to financial success!!
