You work hard for your money, and it’s time for you to take control of it. The best way to do that is with a budget! A budget is a spending plan that allows you to plan exactly how you will spend your money. Or, in the words of Dave Ramsey, a budget it telling your money where to go instead of wondering where it went.
Budgeting helps you understand your finances, pay your bills, and reach your financial goals. If you’ve never written a budget before, or if you dread sitting down each month to pay your bills and work on your finances, don’t fret! I’m going to share my simple tips for facing your finances and creating a realistic monthly budget that you can follow!
How to Organize Your Finances
The first thing you need to do before you begin budgeting is to organize your finances! Schedule some time when you know you’ll be uninterrupted to sit down and write out a list of your bills, debts, and monthly expenses. You don’t need to add in any number right away. You just need to start with big picture.
I like to organize my finances into several big buckets – income, monthly expenses, variable spending, and debt. There are other categories, like savings, sinking funds, and longterm goals, but we are starting with the basics.
The first step in organizing your finances is to assess your income. Your budget will determine how you spend your income, but you need to know how much money you make. Check your paycheck stubs and bank account to determine how much you get paid from work and how often you get paid.
Don’t forget to include other sources of income like child support, alimony, and supplemental payments, passive income, and any money that you make from part-time jobs or side hustles. For example, I earn an income from my full-time job and I also earn income from creating content online.
Add up all of your income and organize it by the month so you know how much money you have to allocate for your monthly budget. Next, it’s time to figure out your expenses.
I categorize my monthly expenses as my monthly bill payments for rent, utilities, credit card payments, any other loan or debt payments, insurance, and any other recurring monthly bills. You can use your bank account statement to help you track your monthly bills.
Print out your statement and highlight all of your bill payments. If there are any that you are behind on or haven’t paid, don’t forget to include those as well. If you don’t already have online access to each bill, create online accounts where you can track these bills.
For example, your cell phone bill is a monthly bill. You should create an online account where you can log in to view your upcoming bill, past payments, usage, and plan details. This will help you track what you’re paying for and your due dates. You can also set up bill payment reminders.
Once you’ve written out all of your monthly bills, then go back and add list the monthly amounts and the dates that they are due. Organize that list from the first of the month to the last day of the month. Now, you know what all of your monthly bills are, and that’s the first step in creating your spending plan.
The next step is to tackle your variable spending! This can be a lot harder because the amounts change each month. Your variable spending categories are items like gasoline, groceries, gifts, dining out, entertainment, your children’s events, allowances, and your own pocket money.
This is harder to track than your monthly bills, and you may have to take a guess, but the categories I listed above are a good start. I also include any medical co-pays and the costs of prescriptions. You can list “items I forgot to budget for” just in case there are variable expenses that you forgot.
Your first attempt at this may be imperfect! Don’t worry. As you get more familiar with budgeting, you will be better able to plan for your variable expenses, and you can always make adjustments as needed.
Now that you’ve listed your monthly debts and variable expenses, it’s time to tackle your debts! Some of your monthly payments will be debt payments, so you’ve already gotten started. But, your debt list is different because you’ll be considering the entire amount that you owe towards debt and not just your monthly payments.
You will list all of your debts from smallest to largest, with the name of the creditor, the type of account, the original amount of the debt, the current amount owed, the monthly payment amount, and the interest rate, if any.
To find all of this information, you may need to dig through old mail, check your credit report, and log into your online accounts. Are there any old debts that you’ve been ignoring? Are there any accounts that need to be addressed immediately? If there are any debts that you need to address right away, add them in your budget. Otherwise, set a goal to create a debt repayment plan.
How to Create a Beginner Budget
Now that you have organized your personal finances, your next step is to actually create your budget. There are several different ways to create a budget but the most popular method is to create a monthly budget. This budget will be a spending plan that will allow you to plan you use your income to cover your monthly bills and spending.
The power of the budget is that it will help you actually take control of your money, and plan where it goes. This will make it more likely that you will be able to cover all of your bills, and avoid overspending. A budget only works if you follow it, but it’s better to have a written plan than no plan at all.
List out all of your expenses, and begin allocating your income to each category. If you have enough money to cover all of your bills, you can simply allocate the amount of each bill, and then decide how to spend any leftover money – spending, saving, or paying down debt.
What to Do If You Don’t Have Enough Money
If you don’t have enough money to cover all of your expenses, then you will need to prioritize. Cut out unnecessary spending like dining out, subscription payments, and other discretionary spending. Prioritize your “four walls.”
Budgeting expert Dave Ramsey emphasizes that people who don’t have enough money to cover their expenses should focus on their four walls – food, utilities, shelter, and transportation. Now, if your circumstances are different, your priorities might be different. For example, my “four walls” include medical care and health insurance, which I highly prioritize.
As you advance in your budgeting, you can start setting goals like savings goals, paying down debt, and setting up “sinking funds” for annual expenses. Your first priorities are to catch up on bills, create a budget, and track your monthly spending.
How to Track Your Monthly Budget
Once you’ve created your budget, it’s important to track your expenses. I like to keep a running list of my expenses, how much they are, when they are due, when I’ve paid them, and any notes that I need to remember.
You can track your budget using fancy software, an Excel sheet, or old fashioned pen and paper. To get started with your beginner budget, I recommend that you track your payments on paper and I’ve created a free budget tracker than you can download.
Click the graphic below to download the budget tracker and start taking control of your finances today!