If you have never created a budget, then there is a possibility that you’re confused and don’t know where to start. Creating your first budget can be daunting especially if you’re doing it on your own. Luckily, I’ll help you with getting started.
The fact that you’re on this post means that you want to get your finances together. Maybe you long for a vacation and hate that most of your money is going toward some kind of debt.
You are tired of living paycheck to paycheck and just want to enjoy more of your hard-working money.
We may find ourselves in this unending cycle of trying to find ways of earning more cash and never dealing with our debts.
It’s a waste trying to make more money when you keep on accumulating more debt.
Let’s start living on a budget instead!
What Is A Budget?
In the simplest definition, the purpose of a budget is to inform or educate you about where your money goes.
Why You Need A Budget?
It doesn’t matter how much money you earn, the amount of debt you have, or if you already live within your means; when it comes to budgeting. It benefits everyone.
- Help you meet your financial goals -Are you saving for a new vehicle? Then let this be your motivation to start budgeting.
- Prioritized your expenses – Is there ever a month where you just didn’t have enough cash and you are wondering what you’ve spent all that money on?
- Pay off debt – This is one of the main reasons why many people start budgeting in the first place.
How to Create a Personal Budget?
Step 1: Calculate Your Monthly Income And Expenses
Your monthly income will be your take-home pay when all taxes and deductions are subtracted.
If you have other sources of income from other places such as side hustles, and investments, etc then add it also.
After you have finished recording your income then you need to tackle the “scary” part, which is your expenses!
There are two types of expenses that I would love to call noticeable and hidden expenses.
Noticeable expenses will be your mortgage, rent, debts, and utilities. The hidden expenses are simply those you didn’t plan for like online courses, a pair of shoes you couldn’t resist.
I wouldn’t worry much about the hidden expenses because it will be reduced after budgeting since it’s mostly influenced by impulse spending.
The next thing you need to do is to sort your expenses into these two groups:
- Fixed expenses– those are expenses estimated to be the same each month. This includes your rent, mortgage, car payment, insurances, and savings.
- Variable expenses – those expenses that changed regularly from month to month. This may include your food, clothing, entertainment, sports, and daycare.
Get this budget bundle by Erin Condren that includes a PetitePlanner Budget Book, functional stickers, a colorful checklists petite journal, and markers.
Step 2: Analyze and Set Financial Goals
After you have created your personal budget, then you need to analyze it for these reasons:
- To find bad spending habits
- To know if you can save more
- To create new financial goals
- And to see if you need to find a way to make more money (like passive income)
- To see where you can make adjustments in your spending
I don’t know what your budget looks like but you will find yourself getting one of these two results:
- Result A: Your expenses surpass your monthly income.
- Result B: Your expenses are lower than your monthly income
What To Do When Your Expenses Surpass Your Monthly Income?
This is why I love budgeting because you’re able to identify the issue in your finances and make adjustments.
Tip 1: No Panicking for it’s not the end of the world
Tip 2: Look through your budget ‘specifically’ on the expense section to see if:
- Are these expenses a need or want? Ask yourself, Is this expense necessary? Is there another non-paid/ inexpensive route?
- Ask yourself, “Is there a way I could reduce my spending?”
If you have done all that you could to reduce your expense and still noting then it’s time to search for ways to earn extra income.
You can start by taking surveys or read these helpful post:
10 Crafts That You Can Make and Sell To Make An Extra Income
Top Money Making Hobbies That’ll Pay You Up to $500+ Monthly
Step 3: Implementing
By setting up your budget you’ll know by now where you stand financially.
The next thing you’re going to do is decide and create a strategy to reach your financial goals.
Examples of Financial Goals:
- Pay off mortgage / Buy a new home
- Pay off debt
- Save towards your child educations
- Save for Emergency
- Save for a family vacation
Remember to get your budget bundle by Erin Condren that includes a PetitePlanner Budget Book, functional stickers, a colorful checklists petite journal, and markers.
Step 4: Track your Spending
There’s no way you’ll know if you’re going over your budget or on budget if you’re not tracking your spending. This helps you to be aware of your spending pattern and habits which makes budgeting a lot easier.
Budgeting without tracking your spending is useless as you will find yourself overspending and not being liable.
You can track your spending in many ways; it primarily based on your preference. You can use the traditional way by using paper and pencil or with this monthly bill tracker.
But if you find out that you never have the motivation to actually track your spending using paper and pen then you might need to try another method.
You could use the Mint app which is free to help you budget and track your spending.
How To Create A Financial Strategy For Paying Off A Debt?
Note: Before I go any further, this method is ONLY possible if you have additional income. If not then you need to get a side hustle.
- Jot down the date you want to pay off this debt (realistic date, please).
- Then based on that date you set, we are going to create a strategy to pay it off.
- Based on the budget you have created, how much money do you have left after expenses?
The budgeting strategy that I recommend for paying off debt would be the snowball method.
The Snowball technique is all about paying off your debt starting with the smallest amount and then move on to larger ones; basically in ascending order
Note: Pay the minimum payment on all the other debt (if more than one) like normal, you’re just putting all your energy and money in paying off one specific debt at a time.
The benefit of this snowball technique is that you’re able to pay off your debt much quicker and at the same time motivate you.
The joy you’ll experience after paying off your first debt is unimaginable.
Have you created a budget yet? If not, you can begin today.
Budgeting helps you to manage your finances efficiently.
With the right budgeting technique, you can create a strategy to pay off debt or even to save money. Budgeting is not about living hand to mouth but rather spending wisely!
Thank you for reading!