You may have read in an article somewhere about budgeting, with a line or two expanding on that if you’re lucky. But if you’ve never made a budget before, this advice can leave you as much in the dark as if you’d been told to build your own car or singlehandedly design a spacecraft. Fortunately, making a budget is substantially easier than either of those things. It can still feel overwhelming, but the tips below can help you get started.
Assess Your Financial Situation
Your first step is to take a clear-eyed look at your finances. This means assessing what you have coming in, what your assets are, what you owe and, roughly, how much you spend each month. You’ll get a better picture of your spending broken down more specifically later, but for now, a ballpark figure of what you can call outgoing is enough.
Make a Debt Reducing Plan
If you’ve just been making the minimum payments on your debt up to now and hoping for the best, it’s time to get a new plan in place. You may need to tweak the exact amounts that you’re working with once you have worked out your budget, but you can set up the basics now. First, figure out if there’s a way to get a more favorable payment plan. If you have student loans, you might be able to refinance them. This could lead to lower interest rates, or the amount that you owe each month might decrease. Next, figure out which debt you are going to primarily focus on first. The bulk of your money should go toward this with minimum payments on the remaining ones until the first one is paid off.
Track Your Spending
This is where you’ll get into the details of where your money is going. For several months, you need to track all of your spending, noting not just how much you spend but where the money is going. You can do this manually or you can get an app to help you. With this information, you can finally sit down and make your budget.
Make a Plan
You can make a weekly or monthly budget. Figure out your big, unchanging expenses first, such as your rent or mortgage payment. You may find that you can reduce some other costs, such as utilities or what you are spending on groceries. However, it’s important to leave room for things you enjoy as well. One big mistake that people often make when creating a budget is trying to be too strict. Be sure as well that you account for occasional expenses, such as shampoo or birthday presents. Take advantage of the internet and find ways to earn and save money online that align with your budget. This will allow you to do the things you love, at a price that is more palatable.
Don’t beat yourself up if the first version of your budget turns out to not quite work for you. This is entirely normal as you test-drive it in the real world. Keep making adjustments as needed. The idea behind it should not be to restrict your spending and lifestyle but to give you the freedom to know that it’s okay to spend in certain areas because you’ve got the basics covered.