A budget is a plan for your money. It sets a clear direction for your income and keeps you on track. In this post I’m going to walk you through the steps of how to make your first budget. If you’ve never budgeted before, this is a great place to start. But even if you have, this is a new technique that could help you revamp your current budgeting style.
HOW TO MAKE YOUR FIRST BUDGET
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When done correctly, a budget can be a powerful thing. And the information it gives you is crucial for staying on track the whole month long.
Budgeting can feel tricky, hard, and uncomfortable at first but with regular practice it becomes second nature. As tough as this first budget might feel, it’s absolutely worth it.
A solid budget is a game changer and an essential part of managing your money well.
Even if you’re already experienced with budgeting, I encourage you to read this post and learn about my budgeting technique.
There were years (YEARS!) when I thought I was “budgeting” but I was actually doing it completely wrong. I’m not saying you’re doing it wrong, but it’s worth exposing yourself to different strategies.
And of course, if you’re brand-new to budgeting, this is the perfect place for you to start! In this post I’m going to walk you through the step-by-step process of how to make your first budget.
But now you might be wondering…
How was I budgeting wrong?
I thought I was making a budget but instead I was making a list of all my monthly expenses.
It was a very confusing and convoluted list too because not every expenses is billed monthly.
I was dividing up annual expenses and listing their monthly cost.
I looked at this “budget” once or twice a year with my husband. We mumbled something about how we should try to lower our costs. And that was it.
And I thought I was budgeting.
In short, this word document that I thought was a budget was actually just a list of expenses. And not a very good one at that.
By the way, this is a completely true story, and I won’t be offended if you laugh at me.
What makes a budget… well, a budget
A budget is a monthly plan for your money.
It gives a purpose to all of the income you have coming in.
As Dave Ramsey says, “Your budget tells your money where to go.”
And it’s actually a pretty empowering things.
Back when I was terrible with money, I thought having a budget would be hard and restrictive. It gave me a headache to even think about it.
But in truth, budgeting is not at all restrictive. It’s actually pretty freeing.
When you organize your income and expenses in a budget you know exactly how all of your bills and expenses will be covered.
It eliminates that will-I-have-enough-money-this-month stress that can eat at us when we don’t have any idea what’s actually happening with our budget.
A NEW BUDGET EVERY MONTH
Your budget will never be a set it and forget thing.
It’s something you need to revisit and recreate each and every month.
But with time, this process will become quick and painless.
Why do you need to make a new budget every month?
Every month has it’s own unique expenses and circumstances.
Your income may be the same each month (or it might not be) but at least some of your expenses will vary.
You also need to account for special events (meaning special expenses) for the month ahead.
When should I make my budget?
You should make each new budget at the end of the month for the month ahead.
My husband and I like to do it during the last weekend of each month.
You want to be sure you have received all of the bills for the upcoming month and you know all of your big plans for the month ahead.
And you want to be sure you make your budget before the month actually starts because you don’t want to go into the new month without a plan.
Okay, now that you know those key aspects of budgeting, we are ready to dive in!
HERE ARE THE 5 MAIN PARTS OF A BUDGET
Part 1: Your Income
You need to start each budget with the money you are actually going to have that month.
Your budget is giving a purpose to each one of your dollars and you can only budget with the money you have, so this is the perfect starting point.
You should record the date and expected amount of your paychecks for the month.
If your married this means your paychecks and your spouses income. If your family has an inconsistent income, you should estimate the lowest average amount as a base level paycheck.
Part 2: Your Bills
Of course, making sure your bills get paid is a huge part of your budget.
Before you begin your budget you will need to look at your bills and get some information. You need to know how much they are and when they are due.
You should record all of your bills with their amount and date their due.
From now on, since you are a budgeter, when your bills come in just take a second to write down this information. I like to keep mine in a note on my phone. That will make it even easy to jump into building your budget next month.
3. Spending Budgets
Within your main monthly budget, you’re going to need some mini budgets for spending. This is basically money that you’re setting aside to meet your family’s needs throughout the month.
These mini spending budgets will pay for things like groceries, gas, household goods, and entertainment.
Mini spending budgets are super important because without them our spending money becomes all the money we have left after our bills. And we don’t actually want to spend all of our money. We want to keep that money and use it for big exciting things. So, we need these mini budgets.
Personally, I choose to keep it simple and just break up my spending categories into groceries, gas, and other spending.
I don’t get super specific about each item in my other spending. Instead, I have a set amount for that category and group it together.
You may choose to break it down further in the future depending on your family’s specific situation, but to keep things simple for now let’s just stick to groceries, gas, and other.
Decide how much you want to spend per month in each of these categories. Then, break that down per week so it’s easier to stick to.
To figure out your gas budget, look back at your previous month. Unless, you’re traveling a ton your gas costs shouldn’t vary too much. It’s a good idea to estimate a little high though so that you don’t go over budget if you drive a little more or if gas prices fluctuate.
Set your other spending budget at a challenging but reasonable amount.
My family’s other spending budget is $100 a month, or $25 per week. This covers things like haircuts, activities, clothes, etc.
These budgets don’t need to be perfect at first. You can tweak them for a few months until you find the right amount to stick with for your family.
4. Set a Purpose for any Extra Money
If you are living within your means, you will have money left at the end of the month beyond your bills and necessary spending.
You need to give this money a purpose.
If you don’t, you’ll find that it disappears. It’ll get spent or dwindled away and you won’t really know where it went.
But this “extra” money is very important!
This is the money you’ll use for any unusual expenses specific to the month ahead. Things like birthday gifts, special events, annual bills – they will all come from this leftover amount.
This is also the money that you’ll be able to put towards your financial goal.
Plan out what you expect to have leftover after bills and necessary expenses at the end of the month and dedicate that money to a specific purpose that is important to you. It can go towards paying off your debt, saving for a house or your dream vacation or your child’s education.
This is where your budget starts to get exciting as it moves you closer to financial goal.
Make sure it gets you fired up and motivated to have extra money left at the end of the month to put towards it.
Now on to the last part of your budget…
5. The math
Once you have all the parts of your budget in place (which you can organize on the FREE budget planning worksheets in my Freebie Library), the only thing left is to do the math.
Don’t let this part intimidate you. It’s just simple subtraction for costs with a little addition mixed in when you get paid.
You’re allowed to use a calculator – I do – and I promise you can do it.
You’ll organize your budget based on the date your income and expenses occur throughout the month.
Where should I organize my budget?
You have plenty of options for where to put your budget.
You could just use a notebook from the dollar store and write it out.
Or you could use these FREE made-for-you printables from in my Freebie Library.
You could even use a spreadsheet if that’s more your style.
Choose a method that works for you.
MAKE YOUR FIRST BUDGET
Now you know everything you need to know about how to make your first budget. So, it’s time to take action!
Make your first budget today! Remember to start with your income because you can only budget for the money you have. Then, subtract your bills and other mini spending budgets as they’re expected to occur throughout the month.
Use these free printable budget worksheets to make it easier!
You will have to make a new budget each month, but with time it will become a much easier and quicker process.
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