If you are serious about saving money and getting your finances under control, it is an absolute necessity that you build a budget. Knowing how much money you have and where it is going is essential to paying off debt, saving for major expenses like a house or a car, and even retirement.
But how do you get started? If you have never built a budget before, it can seem overwhelming. Follow these next few steps on how to build a budget and you will find yourself controlling your finances and tracking every dollar in no time!
Write down all your fixed expenses.
Now, this is not talking about writing down what you spent on lunch or the coffee you got this morning. This step is recording all regularly occurring fixed expenses. This includes rent or mortgage, utilities, home internet, your cell phone, Netflix, car payments, and even car insurance. This is not an all-inclusive list, so be sure to record everything that is a repeating expense.
It is important to note that you are NOT cutting anything out of your budget yet. This is simply getting everything in front of you so you can see it. A great program to do this is Excel (or if you do not already have Microsoft Office, Google Spreadsheets is a free option). In one column, write the name of the expense. In the column next to it, right the cost.
Write down all your income.
Now that you know where all your money is going, you need to know exactly how much money you make. For the purpose of a budget, you should be using your after-tax, take-home amount. This includes anything taken out for health insurance or retirement.
Many jobs do not have a regular income. For example, if you are a commissioned salesmen, your income is going to vary from month to month. If you have a base pay with commission on top of that, try to budget based on your base pay. If you are 100% commission, budget based on the 12 month average of your commission. This will help you from making a budget that exceeds your normal income.
Subtract your expenses from your income.
Once you have all your expenses and all of your income written down, it is time for math! Subtracting your expenses from your income will give you either a positive or negative amount. If that number:
- Is positive, that means you have disposable income in your budget. This is income that is not already allotted to a fixed expense. However, just because you have it does not mean it is completely free to use. You still need to consider groceries, eating out, buying clothes, or other items that are not a part of your regular expenses. We will talk more on this in a moment.
- Is negative, that means your fixed expenses exceed your monthly income. This is a problem. If you find yourself in this position, you will want to immediately move to the next step.
Consider what fixed expenses need to be removed or lowered
If you have a large amount of disposable income, you may or may not need to consider this step. You may have already trimmed the fat in your budget, or you simply may not need to. However, you may want to if you want to do the following:
- Save for a down payment on a home
- Save for a car
- Make extra savings for retirement
- Save for any other large expense
If your budget showed that you have no disposable income (that initial number was in the negative), you must make a change to fixed expenses. That may mean getting rid of services like Netflix. It may mean changing your cellphone plan or switching to a less expensive carrier. It may even mean moving to a place with lower rent or a better deal on utilities. Whatever it may be, something must be done, because you are bleeding money monthly.
Allot money for non-regular expenses
Once you have a solid figure on what your actual disposable income is, you should allot money for less regular expenses. This may include a grocery budget, a clothes budget, or a savings goal. It may include a large, one-time expense (like buying a new appliance). Whatever the case may be, having a budget will make this part of making a budget easier.
Of course, all work and no play makes Jack a dull boy. This is an opportunity to budget for fun things as well, like socializing, eating out, or whatever else you may enjoy doing. The glory of making a budget is that you are able to spend money on those things and not break the bank or feel bad about spending money.
Track your spending
This is the final step in making a budget, and it is often the most difficult one. Once you have created spending goals, you need to track your spending habits to make sure you are sticking with your budget. You can keep receipts from the purchases of the day, but that can be tedious. You may want to opt for a more modern way to track your expenses, like budget apps. These apps can automatically track your spending and categorize it for you. Then you can input that data into your budget and keep a running tally to make sure you stay within the spending boundaries you have created.
Apps like Mint were created specifically for this purpose. However, many financial institutions, like your local bank or credit cards, are beginning to offer similar free services as well. These services are definitely worth taking advantage of, as tracking your spending is key to sticking to a budget.
Building a budget and sticking to it is not easy, but it definitely is rewarding. Getting your finances under control can let you pay down debt more quickly, allow you to save towards life-changing items, or even retire early! It is never too late to start building a budget, so start today!
Tracking Your Monthly Expenses
Building and maintaining a budget is not easy, and one of the most difficult components of sticking with a budget is tracking expenses. It is a chore, it can be easy to forget, and if you forgot for too long, it can seem overwhelming and not worth doing.
However, it is ALWAYS worth doing, and there are some methods that you can use in order to make tracking expenses easier. There are habits to build and apps to use that make this tedious task far more manageable.
Put Your Budget on the Cloud
Creating a spreadsheet for your budget is one of the best ways to make a clear, easily understood budget. If you put that budget on the cloud, you can access it at any time, like from a smartphone. If you want to stick with manually putting in your expenses, being able to pop your phone out after a purchase can help you build the habit of tracking every single expense.
There are a couple of programs that you can use on the cloud. Google Spreadsheets is a free program that acts much like Excel. There are apps available that allow you to make changes to spreadsheets on your phone. Speaking of Excel, that is another option you can use. A limited version of it is available for free, though you may want to spring for the whole Microsoft Suite if you are a heavy user.
Keep Certain Expenses Cash Only
When you create a budget, it is wise to have a "fun" budget or a small allowance for discretionary spending. These are the expenses that are easy to make mindlessly and let go out of control. However, an easy way to track and control them is to keep them cash only. For example, if you have allotted $50 for a personal allowance, keep that in cash. That way, you can know how much you have left each month because it will be the cash in your wallet.
This method can work with other expenses as well, especially if you are trying to avoid using debit or credit cards. For certain category of expenses, keep an envelope at home with cash that represents what you have allotted for that category. For example, keeping your grocery budget in a cash envelope is a great way to easily track and restrain spending.
Take Advantage of Automatic Expense Tracking on your Debit or Credit Card
If you like to use your credit or debit card as the primary method of buying things, you may already have access to a great tool for tracking expenses. Accessing your accounts through a mobile app can let you see specifically what has been spent, which is great for manually tracking. However, many financial institutions offer spending categorization so you can see where your money is going.
For example, if you are a Chase credit card customer, they offer a "spending snapshot" that categorizes your spending. You can see what percentage of your money is going into each one, be it food, groceries, travel, or more. It also allows you to see individual expenses within those categories if you want to see the nitty-gritty of what you spent money on.
Use a Finance Tracker App
You may not have access to expense tracking through your financial institution, or you simply may not like the user interface. There are a number of apps that you can download that link to your spending accounts and automatically track where your money is going as well. This is especially useful if you have several different accounts across several different financial institutions.
For example, the Mint app can access your bank accounts, credit card accounts, retirement accounts, even loan accounts and mortgage accounts to give you a birds-eye view of all your expenses and exactly what money is going where. It also allows you to set savings goals which it also automatically tracks. Mint is not the only option, so if this seems like something that entices you, take a look at your available app store and see what is there.
Save Receipts
If you do not like the idea of manually inputting every expense as you make it through your mobile device, another method to track expenses is simply saving your receipts. If you keep your receipts through the day or even through the week, you can take time at home to sit down and manually input everything into a budget spreadsheet. If sitting down and taking your time writing down your expenses is appealing, then this method might be ideal for you.
Get Your Partner Onboard
Having a partner that you share expenses with can give you a lot of financial breathing room. It can, however, also be a roadblock into successful finance tracking. If they are not willing to track their expenses, it may cause an issue with making sure you are staying within your budget.
If this is a problem for, simply linking all spending accounts to a spending app may be your best option. Even if it is not perfectly ideal for you, it will be better than not having any idea at all what they are spending.
Be Consistent
Honestly, this is the most important thing you can do when you begin to track expenses. It does not matter what method you use to track expenses, be it an app, a spreadsheet, or even just manually writing things down, just as long as you consistently do it.
Building the habit is key. As you begin to more consistently track expenses, you will naturally start to make more mindful purchases with your money. Being mindful with your money and being able to use self-restraint is the end goal, is it not?
Tracking your expenses can be frustrating to do well, but the dividends it pays are huge. Knowing exactly where your money is going can help you make better financial decision, pay down debt, and begin saving. It is never too late to start tracking your expenses, so find out which method works best for you!
