Are you looking to get your finances on track? Learning how to create a budget can be a great place to start.
It’s amazing how many people know they need a budget but are unsure on how to create one. Whether you’re looking for insight on how to create a budget or seeking tips on editing your current budget, you’re in the right place.
I’ll walk you through the budgeting basics you need in place to get your finances moving in the right direction. Here’s what you must know to start a budget that works:
**I am not a financial professional. These are basic tips based on my own experiences. Proceed at your own risk. For assistance, seek a certified financial professional. **
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1. Knowing What’s Coming In is the First Step When Learning How to Create a Budget
If you’re going to create a budget, you must begin with what you have to work with. It’s important to know how much money you make in a month.
For some, it’s as simple as looking at your latest paystub. Other people may live on a variable income. I’ve done both for a number of years.
If your income doesn’t change, write down that number. If your income changes, you have two approaches.
The first is to get an average income. This is great if you don’t have much variation in your income from month to month.
When my husband had a variable income, we had big shifts in our income. Therefore, I based our budget around his smallest paycheck for the previous year. That way, I knew our minimum income and was prepared to thrive in any circumstance.
Once you know how much money you make in a month, it’s time to get to work.
2. Knowing What’s Going Out is the Second Step When Learning How to Create a Budget
You know how much money you bring in each month, but do you know where it goes? This is equally as important as knowing how much money you make.
What good does it do you to make money if you have no clue where it’s being spent? Write out every bill you have.
This may include things such as:
- Car payment
- Internet and TV Services
- Credit Card Payments
- Student Loans
- Medical Expenses
Once you know how much money you pay out, add it up, and subtract your total expenses from your total income.
If you have enough money to pay your bills and still have money leftover, CONGRATULATIONS!!
However, if you’ve found you’re spending more than you’re making, I’m going to walk you through how to cut expenses. We’ll discuss this a little farther into the article.
In the meantime, pay the bills that matter most (mortgage, utilities, car payment, insurances, etc.) and put the rest on hold.
3. Make It Automatic
While you’re creating your budget, it’s an ideal time to make a payment plan. This is when you schedule which bills are due at what time of the month and which checks they should come from.
If you’re looking for an affordable way to keep your bills organized, consider purchasing a bill organizer to store bills and jot down your payment plan.
This removes all of the work from paying bills. On paydays, sit down, look at your payment schedule, write the checks, and you’re done.
The more payments you can set-up for automatic payment, the less work you must do. See which companies will allow you to set-up your bills for auto payment. Some companies will even give you a discount for setting your bills up for auto pay.
4. Time to Trim
You’re part of the group that spends more than they make. I’ve been there, and you shouldn’t panic.
Instead, you should prepare to tighten your belt. When we have unexpected expenses fly up around my house, I tell my family, “It’s better to tighten our belts and live frugally by choice for a little while than to end up being forced to live frugally for extended periods of time out of necessity.”
Begin by looking at your bills. Anything that isn’t necessary, cut it. This may mean you must live without TV services, internet, or on a tighter grocery budget for a while.
That’s okay because you’re living within your means.
Once you’ve trimmed all you can, see if you’re within your income. If not, it’s time to start calling companies and working out payment arrangements.
Many times, credit card companies will lower your payments if you’re in a financial crunch. You can work towards using less utilities to lower your monthly bills.
If your debt is overwhelming, seek out credit counseling. Use these services with caution. They aren’t created equal.
When my family was going through a difficult time, we went through Christian Credit Counselors. In our experience, they were helpful, didn’t charge any unreasonable fees, lowered our monthly payments, and we got out of debt while still paying what we owed.
Again, do your own research before seeking these services. I am not a financial professional. This is simply my experience.
5. Put Savings in a Safe Place
If you have a hard time keeping your hands out of your savings once it’s there, consider putting it further out of reach.
If you struggle to have savings, consider opening an Acorns account. It rolls each purchase you make with a registered card to the next dollar.
The money is invested in a stock market portfolio and can earn dividends if the market is doing well. I love this because it takes a few days for the money to be transferred into your account.
This makes you really think if you actually need the money before pulling it from the account.
6. Get Your Head in the Game
Our last stop on creating a budget is all about your mindset. If you don’t want to live within your means, you won’t.
It’s that simple. Things will come up. You’ll get frustrated. You’ll be forced to tell yourself, “NO!”
However, if you’ll adjust your attitude, living on a budget won’t be as tough on you. If this is something you want to do, those sacrifices will come a little easier.
Make sure your mind is right before activating your budget, or you may find the planning process to be a waste of your time.
Hopefully these tips will help you set-up and live on a budget. Living within our means isn’t always easy, but you could end up in a much better financial situation down the road if you’re willing to make sacrifices now.
So what are you waiting for? You now know how to create a budget that works. Create one and take control of your finances.