To create a budget can be challenging. It’s a process that often requires brutal honesty and self-awareness to ensure you succeed. A good budget is more than just tracking how much of your money you’re spending.
It’s about putting every peso in your bank account to work for you so that you reach your financial goals faster. Creating a budget shouldn’t feel like another errand or chore; it should feel like an exciting adventure! With the right tools, creating a budget doesn’t have to be scary or difficult. You just need the right information and support to get started on the right track.
Consider this your ultimate beginners’ guide to creating a budget. No matter where you are in life, read on for everything you need to know about how to create a budget and why it’s one of the most important things you can do for yourself as an adult
What is a budget?
A budget is a plan for how you’re going to spend all your available income (gross income minus taxes and other fixed expenses). Budgets are meant to be changed and adjusted as life happens, so don’t get too hung up on trying to follow it to the letter every month. The real goal of a budget is to help you be more intentional with the money you make. When you create a budget, you’re making a commitment to yourself to use your money in a way that helps you achieve your financial goals.
If you’ve never created a budget before, you can think of it as a kind of pie chart. Every peso you make goes into one of several buckets representing different areas of your life. These different areas can include things like your mortgage, utilities, food, transportation, and other fixed expenses like insurance or loan payments. Your remaining income will go towards things like debt repayment, savings, and investments.
Why create a budget?
Because your budget will help you get a better handle on your spending and make better financial decisions. Budgeting also helps you plan for the future and manage your risk. By tracking your spending and savings, you can make sure you’re putting enough away for retirement or other long-term goals.
By creating a budget, you’ll know exactly how much is coming in every month and what you’re spending it. This will help you avoid unnecessary debt and take control of your financial future.
A budget can help you make more strategic financial decisions. Not only will you know how much you have to spend each month, but you’ll also know where that money is going. This can help you avoid overspending on things you don’t really need while still making sure you’re saving enough for future goals like retirement or a down payment on a house.
Write down your current expenses
The first step to creating a budget is to figure out exactly where your money is going. If you don’t know what’s coming in and going out, you can’t create a budget. If you’ve never created a budget before, this can seem like an overwhelming task. But don’t stress! It’s actually much easier than it sounds. You just need to be honest with yourself and track every expense in your life for at least one month.
Dissect your monthly expenses into three categories. Fixed expenses are things that are always the same each month, like your mortgage or car payment. These are expenses you don’t have a lot of control over. You’ll have to pay them every month no matter what.
Variable expenses are the things that change each month, like groceries or gas. They’re important to track but you may not have a lot of control over the amount. Finally, there are aspirational goals. These are things that you want to save for but aren’t a must-have. Examples of aspirational goals include travel, a new car, or a vacation home.
Track your income and investments
This may sound odd, but it’s important to track your income and investments. Like your expenses, this will help you see where you stand financially and how close you are to reaching your short- and long-term goals. Your income is the amount of money coming into your bank account each month. This includes things like your paycheck and other monthly income like rental income or side hustles.
The easiest way to track your income and investments is to use an excel spreadsheet or app like Mint. This will help you see how much money you’re bringing in each month and how much is going towards savings. It’s also important to note how much you’re contributing to your investments and what type of account they’re in. This will help you see how close you are to reaching your long-term financial goals.
Decide what’s important to you and what you don’t want to spend on
Now that you know exactly where your money is going and what you’re saving for, it’s time to decide how you want to divide up and create a budget. You may have heard the saying “pay yourself first”, which is exactly what you want to do with your budget. This means making sure you’re putting money towards your savings and investments before you spend it on frivolous things.
Whatever you decide to budget for, make sure it’s important to you. If you, like most people, have a mix of fixed and variable expenses each month, you’ll have to make some tough choices on where to put your money. It’s important to remember that budgets are fluid. While you may have to make tough decisions now, you can always change your budget later if your circumstances change. And they likely will at some point.
Bottom line: to create a budget is an ongoing process
Once you create a budget, it’s important to stick with it. Budgeting isn’t something you do once and then call it a day. It’s an ongoing process that requires commitment and attention to detail. In fact, it’s recommended that you create a new budget every year. This will help you make sure your spending is up to date with your current financial situation.
That being said, to create a budget is not a one-time thing. You should always be tweaking your budget based on changes in your life and new financial goals you want to reach.
Remember: Budgets are meant to be flexible. So don’t get too hung up on trying to follow it to the letter every month. The real goal of a budget is to help you be more intentional with the money you make.
