The first step to any financial goal (whether that’s getting out of debt, saving for a house, or whatever your little heart desires) is to build a budget and learn to stay within that budget. Once you have some idea of where your money goes each month you can start to figure out where you can make small changes and save a lot of money.
Shall we get started?
How do you want to create your budget?
If you like to keep everything digital then excel or google sheets are for you. Both are great tools for budgeting and are pretty easy once you get the hang of them.
But don’t worry, there are templates you can download if you don’t want to spend the time making a spreadsheet. Both of these sites have some good templates you can download for free:
Or check out MY free monthly budget template which is categorized, color coded and awesome!
And you can always build your own with this tutorial:
I recommend building your own because it’s easier to fix something that goes wonky when you know how it was built, but you don’t have to.
You could also use a pen and paper if you’re old school like that. The important thing is to find the system that is going to work best for you.
How much do you spend?
Next you need to assess and record all of your expenses. Writing down your rent/mortgage or cable bill is pretty straight forward but you also need to figure out how much you spend on all the other stuff. Again, you will have to decide which technique is right for you but for this step pen and paper may be the best choice because we’re just trying to get numbers to start our budget with.
We never use cash for anything so we usually just go back through our bank statement to figure out how much we are spending on food, clothing, etc.
If you’re so inclined, there are a bunch of smartphone apps that you can use to keep track of your expenses and a lot of them are free!
Or, if you are like me and gasp don’t have a smartphone, you can use good ol’ pen and paper. Keep a notepad in your bag or a piece of paper in your wallet to record all of your purchases. Make sure to record every little thing. Here is a great resource for this technique:
Record your sources of income
Easy enough right?
Just make sure to record your net income.
A note for freelancers, self-employed etc:
If your income is inconsistent because you freelance or are self employed you should base your budget on whatever fixed income you have (part time job, spouses job etc). If you can’t do that then build your budget so that fixed expenses are paid from fixed income and variable expenses are paid from variable income (more on variable and fixed expenses in a minute).
If your only income is inconsistent then you can base your budget on the lowest amount you expect to get for the month. If that still doesn’t work you can base your budget on the average you make in the month but you will have to be very careful to save the extra from good months so you can pay your bills on the lean months.
For those of you who don’t have taxes taken out automatically:
Now it’s time to build your budget!
Depending on what budget template you are using, it’s a good idea to break your expenses into two categories: fixed and variable.
Fixed expenses are things like rent, credit card minimum payments, and cable. They are the same every month.
Variable expenses are things like power, groceries, medical co-pays etc. They can change month to month.
Don’t know where to start? Here are some resources for figuring out a good starting place for your budget:
After entering your income & expenses and doing the math (or letting excel do it for you):
Are you making more than you are spending?
If your answer is yes; good! that’s a great start.
If your answer is no; you have two option: spend less or make more. Or both! (Okay so that’s three options.)
Where can you trim to find some extra money? Can you cut back on dinners out? Cancel cable or magazine subscriptions?
Here are some creative suggestions for trimming your budget.
What happens when you cut back on everything that you can cut back on and still can’t make it work?
You need to make more money!
Can you get a raise or overtime at your current job? Can you start freelancing or start a side business? Here are some great ideas for making extra income: