A Simple Guide To Creating Your First Real Budget
Budget. The other B word. Many of us hate it. Some don’t know how to do it. But all of us need it. I still don’t fully understand why budgeting isn’t included in high school curriculum because most adults enter the world and have never been taught how to budget. We go to college and throw away money on Ramen noodles and club entry fees (do the kids still do that?). Then we graduate, get our first real job where we’re making some real money and haven’t a clue what to do with it. We either fall into credit card debt because we feel like we aren’t making enough or we call mommy and daddy to bail us out. The brave few start their own business, but without a real budget or a real plan, they find themselves in financial trouble very quickly and swimming in a mountain of debt and bills.
Budgeting can save you a lot of time and a lot of heartaches when it comes to money. A little discipline goes a long way to help you avoid financial pitfalls. Simply put, budgeting tells your money where to go. Think of your money like a child. If you don’t tell it where to go, it goes wherever it wants to and not necessarily where it needs to go. Your money will go to that new bag you want to buy instead of that bill that needs to be paid. Trust me. It happens to me every time I go to Target. But when you have a budget, it keeps your money restrained, and it keeps you in place of financial freedom.
The brave few start their own business, but without a real budget or a real plan, they find themselves in financial trouble very quickly and swimming in a mountain of debt and bills.
Take a moment and think about your financial goals. If you don’t have any yet, make some quick ones. Is it to have $5000 saved in the bank? Is it to pay off debt? Is it to get a new business or product up and running? None of these goals can happen if you aren’t budgeting. Budgeting doesn’t have to be such a hard thing. Take these 4 steps to budgeting and start taking steps towards accomplishing your financial goals.
Get the Big Picture
The first step of budgeting is to write down all your income and all of your expenses. Write down your take-home pay from your job, the money you receive from every client in your business, and any additional income you may get (Alimony, Child Support, SSI, etc.). Once you have a picture of what’s coming in, write down EVERYTHING that you have to pay. I mean everything. Rent/Mortgage payments, utility bills, student loan payments, any automatic drafts from stuff you signed up for but you forget to cancel every month, car payments, car insurance, childcare fees, child support/alimony payments, etc. I mean everything that is necessary for you to pay that comes out of your account. Write it all down so you can get a clear picture of what you have coming in and what you have going out.
When you have a full list of your income and what you have going out, take a look to see if what you have going out is more than what you have coming in. If not, you’re in a good space! However, if you find yourself like many others where your output is greater than your income, then it’s time to be realistic. What are you spending money on that you need to cut? Do you really need a subscription to all of those monthly boxes? Do you use that business resource that you’re paying for, but you aren’t using? Not will you use it, but do you actually use it? If not, cut it! How much money are you spending out to eat? How often are you going to Starbucks? Where else can you make sacrifices? I know, we don’t like that word either, but in order to have a successful budget, you have to make sure what comes in is at least equal to what goes out (more is the goal y’all!). Be honest with yourself and keep your goals in mind when you are looking at your spending.
Budget Every Dollar
Use the every dollar budget method to keep yourself on track. The every dollar method means that you account for every dollar. Again, if you don’t tell your money where to go, it wanders away from you. You cannot build a lifestyle of wealth if you aren’t disciplined with your money. When you create your budget, after all your necessary bills are paid, and all of the things that you decided to keep after looking at your account are covered, then any extra money can go towards savings, entertainment, going out to eat, shopping, etc. But make sure that every dollar has a name and budget to $0.00. You can use a website like everydollar.com to help you with your budgeting and help you make that all monies are accounted for. Budgeting to every dollar is important to help you keep on track.
Be flexible and reevaluate
Every few months it’s important to reevaluate your budget. What’s working and what’s not? Have you paid off any debt that you can reallocate that money towards something else? Have you gotten a new client and added more income? Budgeting doesn’t have to be rigid. Budgeting is for your benefit to help you be a person of financial freedom. Give yourself grace. The more you get into the habit of budgeting, the easier it becomes. Find what works for you and your family. Most importantly, start. You’ll never get to where you’d like to be financially if you haven’t started budgeting.
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written by brittany harris
Brittany is a blogger and podcast host where she shares the life lessons she learns and how to help others grow from her experience. She is also the LOE editorial assistant. Visit her website.