Budgeting 101: 7 Steps to Creating Your First Budget

Making Financial Decisions That Benefit Your Well-Being

I want to preface these budgeting steps with the thought of not needing to keep up with the Joneses. We as Americans are enslaving ourselves to our own debt. And for what? To drive the nicest car? To live in the most expensive home? All so that we work 50 hours a week, contemplate taking on a side hustle, yet still worry about an unexpected expense since we are living pay check to pay check? I am all for striving for the nicest car and home, but sometimes to get there means making sacrifices (i.e. driving a car for as long as it safely will last, saying no to friends who spend hundreds of dollars every weekend going out, saying “no” in general even though friends might be upset with you). Celebrate milestones and achievements, but avoid living a life that always prolongs the next milestone.

Time goes by quick. Do what will benefit you, your family, and your mental well-being. Alright, are you ready? Here are 7 tips on how to get yourself on a budget and sticking to it.

1. Track your spending and income

The first step to creating a budget is to track your spending and determining what you make after taxes each month. This will give you a clear picture of where your money is going and where you can cut back. There are a number of ways to track your spending, including using a budgeting app (Like Mint, Goodbudget, or YNAB), tracking your expenses manually, using a spreadsheet, or even writing it on paper.

2. Set up a savings account

Once you have a clear idea of your spending, you can start setting up a savings account. This account should be separate from your checking account and should only be used for emergency expenses. Try to automate your savings so that you are automatically transferring a fixed amount each month. This will help you when it comes time to putting additional money towards retirement or even purchasing a house. And don’t forget, if this is for an emergency fund, try to put 3–6 months of expenses in this account.

3. Create a budget

After you have tracked your spending, income, and set up a savings account, you can start creating a budget. When creating a budget, be sure to include all of your necessary expenses, such as rent, utilities, food, transportation, and debt payments. Once you have all of your expenses accounted for, you can start allotting money for discretionary spending, such as entertainment and dining out.

4. Cut back on unnecessary expenses

One of the key aspects of budgeting is learning to live within your means. After a few months of budgeting, you might realize that you may be overspending in certain categories. Think about cutting back on expenses such as eating out, shopping, and entertainment if you are not able to stay ahead each month. Instead, focus on spending money on essential items, such as food, shelter, and transportation. This will help you focus on other areas like savings, investments, and even purchasing a home.

5. Stick to your budget

Once you have created a budget, it is important to stick to it. This may require making some lifestyle changes, such as cooking at home more often or finding free or low-cost entertainment options. However, sticking to your budget will help you reach your financial goals and avoid debt.

6. Automate your finances

One of the best ways to stay on top of your budget is to automate your finances. This means setting up automatic payments for bills and setting up direct deposit for your paycheck. This will help you avoid late payments and overdraft fees, and will make it easier to stick to your budget. Automating as many areas of your financial life as you can will ensure the structure that is in place stays intact.

7. Review your progress regularly

It is important to review your budget regularly to make sure you are still on track. This will help you make necessary adjustments if your income or expenses change over time. Also, reviewing your budget regularly will give clarity on areas where you may be able to save more money.

You know that compass in Pirates of the Caribbean that Captain Jack Sparrow used to get him to his destination? Most people in the movie looked at Jack as though he were crazy, they figured he was lost and it would never help him get to where he wanted to go in life. A lot of people view a budget or spending plan in the same light. They see it, they notice it doesn’t point north, seems useless, but it actually gets you to the things that you desire. A little patience, observation, and perseverance will get you a long way. That vacation you always dreamt of, that house you thought you could never live in, becoming a millionaire in your lifetime, all of that is possible by creating a sustainable financial foundation. Ignore all of the noise, the peer pressures, and all other distractions that truly take away from fulfilling your goals and desires.

*This is not financial advice. For educational purposes only.