I learned very early on as a 22 year old how essential a budget was when my newlywed husband and I began saving for our first home. We were living in an apartment at the time and preparing to welcome our first child. At that time, there was few online resources for young adults on how to create a budget. There was even less information on how to actually save money quickly and effectively. I decided to create the resource I needed myself, and came up with a budget template that I still use today, over a decade later.
How to Make a Budget in 4 Simple Steps:
Find a Good Budget Template: These days there are so many resources on the internet that you don't need to reinvent the wheel here, you just need to find a comprehensive budget sample and adjust it to meet you needs. This simple (and FREE!) excel budget template that I created and have personally used for over a decade now is available above here!
Determine What Your Income Is: Are you a salaried employee, hourly, commissions and base, consultant, freelance worker? Whatever you income sources are, you first need to determine exactly how much you expect to earn in a given month ( or year) to create your budget. Even if it is your best estimate, you need to know how much money you make before you can know how much you can spend.
Determine What Your Expenses Are: Do you know exactly what you spend each month? If you don't, you need to. To do this, first determine the following:
Fixed Expenses: What expenses do you have each month that are exactly the same, no matter what? These are your fixed expenses. Examples include a fixed mortgage or rent that you pay each month, your monthly car payment, your phone bill, your car insurance, or life insurance, etc.
Variable Expenses: What are the expenses you have each month that are always there, but tend to change, or that you have some control over? These are your variable expenses. Examples include your groceries, gas for your car, money on clothes and going out, etc.
**Helpful Tip: Do you have no idea what you spend each month in variable expenses? Do a little research for a few weeks. If you have credit cards, oftentimes when you log into your credit card account online, the credit card company offers free tools on your account page to break down your expenses into various categories. This can help you get an idea of what your spending in each area. Another thing you can do is track your expenses each day in a small notebook, your phone, or a planner for several weeks. This will not only allow you to get an idea your overall expenses, but it will make you aware of what you are actually spending money (or wasting money) on!
4. Subtract Your Expenses From Your Income: This is the most important part! When you subtract your income from your expenses, is the number a positive number? If it is, GREAT! You have net savings each month, and from there you can decide how you want to save or invest this amount. If you subtract these two numbers though and you get a negative number, well, you have a bit of a problem. This means you are spending more than you are making which long-term will result in financial issues, lots of personal debt, and lots of stress. With my free budget template, these numbers will be calculated automatically for you in the template!
At the end of the day, financial peace comes from financial awareness. Being aware of your budget, having the power to tell your money where to go, gives you the freedom in life to really do the things you want to do, reach the goals you want to reach without the added stresses of financial problems.
I hope you found this helpful and simple!
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