Budgeting

Money Management: Tips for Creating a Budget

Jun 26, 2018

Man creating a budget on his laptop

Creating a budget is a vital part of managing your money and meeting your financial goals. If you have a history of not tracking your spending habits, even the idea of creating a budget can be intimidating. The good news is that outlining a budget for yourself can be a straightforward process that will make a big difference in your life. Follow these simple steps to get started.

 

1. Set your goals.

Before you tackle the task of organizing your finances and taking a closer look at your spending habits, take a moment to write down your goals. For example, some people want to be able to enjoy better financial security and build a savings account. Include these items, but also think about other long-term goals, such as taking your dream vacation. Writing down these goals will help you stay on track and act as a reminder of why you are trying to change your habits.

2. Examine your income and expenses.

This is often the most difficult step because it requires taking an honest look at how much money you have coming in and where your money is being spent. While you might have a general idea of how your spending habits are affecting your life, this step can really bring things into focus.

Use this calculator to help you figure out your income and expenses. Enter whole number amounts for each category. If you don’t know the exact amount, do your best to make an educated guess and tend to round up a little to be on the safe side. At the bottom of the page, the section called “Budget Review” will show you if you are over or under your current budget. A positive number means you have that much left over, and a negative number means that’s how much you are overspending each month.

If all of your income is going toward fixed expenses, you may need to consider downsizing your life or finding ways to earn extra money.

3. Find ways to reduce discretionary spending.

Most people don’t realize how much discretionary money they actually have. This is due, in part, to the fact that these funds typically go toward expenses that are considered necessary, such as fuel and groceries. However, there are ways to significantly reduce the amount you spend on “necessary” items that are a part of your monthly budget. Cutting coupons and comparison shopping can help you save and require little effort.

You can also cut back on entertainment costs by eliminating cable, renting movies and cooking more of your meals at home. The idea of spending less time out on the town might not sound that appealing, but when you consider that a few more nights at home will help you reach your financial goals, it is well worth a small sacrifice.

4. Revisit your budget on a regular basis.

Creating a budget is the first step toward managing your money, but you will want to continue to revisit your budget every couple months to make adjustments. As you learn more about your spending and saving, you may be able to find new ways to cut costs and increase income. Your budget should be a dynamic document that you are consistently updating and tweaking.

5. Practice commitment.

If you treat your budget like a suggestion for spending, you won’t reach your financial goals and learn better money management skills. Make a commitment to outline a budget that works for you and stick to it. There may be emergencies that cause your spending to get off track, but avoid giving into temptations when it comes to impulse purchases that don’t fall within your budget.

Learning better money management skills and creating a budget that works for you is a process. Remember to take it in steps to avoid becoming overwhelmed. Start on a positive note by identifying what goals you want to achieve by taking control of your finances. Having goals in mind will help you stay motivated as you start to unpack your spending and try to stay committed to a new program.