How Do I Make a Budget? Follow these 10 Easy Steps to making a Financial Plan.
Making a budget has become more important now than at any time in recent memory. Many people are squeezed for money, and are losing their jobs to the point where they are living check to check and day to day. Having a budget has always been a good idea, and it is practiced by many successful people who have enough money where they do not need one. No matter what situation you are in having a budget and sticking to it will ensure that you are getting the most out of your money. Many people will ask how do I create a budget? Follow these 10 steps and you will have a budget in no time.
1. Track your expenditures for a period of one week to one month. Record every cent that you spend. It’s important to know where your money goes before you set about building a realistic budget. You also need to make a list of expenses that, while not regular monthly bills occur periodically and must be accounted for (i.e. vehicle registration, property taxes, medical co-pays, etc.). These irregular expenses may be tougher to come up with, but try to determine a realistic estimate. One of the best ways to track your expenses is to not use cash, and use the same debit or credit card for the tracking period. That way you can look at all of your transactions in one place rather than trying to compare multiple bank statements.
2. Make decisions about your budget. Once you’ve gathered the information, it’s decision time! Could you do without the data plan on your cell phone in favor of the basic voice service in order to save $40 each month or $840 per year? Must you have both Netflix and HBO? Does your dog 
need a monthly trip to the groomer, or could you bathe him at home? These are the types of questions you will need to ask yourself. As you make these decisions, you should then terminate accounts, change services plans, and/or take other needed actions to effect the necessary changes.
3. Consider the structure of your budget. How are you paying your bills? Most pre-designed systems are designed on a monthly budget cycle. For many people, this works. Personally, I’ve built my budget on a bi-weekly cycle, as this is how I’m paid. For instance, my husband and I alternate paying our $750 rent each month. So every two weeks, I budget $187.50 toward rent. At the end of two months, I’ve got my full rent payment already set aside.
4. Build your budget. Once you’ve decided what you will spend your money on and how your budget will be structured, it’s time to create your plan. Whether on paper, in a spreadsheet, using personal budget software such as YNAB (You Need A Budget), Microsoft Money, or Quicken (also check out personal finance tools such as Mint and Wesabe — they’re FREE!), the method that is most comfortable for you is the right method. Be sure to include:
Net income
-
- Savings and investments — This is the first subtraction from your net income because, cliched as it may be, you really do need to pay yourself first.
- Non-discretionary expenses — Necessities such as mortgage/rent, food, utilities, debt repayment, and the like. Don’t forget about those irregular expenses, too.
- Discretionary items – Non-necessities such as dining out, entertainment, pocket money, etc.
Remember, you don’t have to give up everything that you want just because you’re trying to save money. Much like going on an extreme diet will eventually lead to a fried food and candy binge, trying to live by an overly restrictive budget will eventually lead to overspending and a shopping binge. Keep your numbers as realistic as possible.
5. Start doing all the necessary calculations. Most people struggle with this step; they cannot be truthful to themselves and realize buying things they want without a plan will not be allowed under their new budget.
6. Subtract your anticipated expenses from your net income.
7. Do you have a positive number at the bottom of the page? Add that leftover number to either the savings/investment or debt repayment categories.
8. Got a negative number at the bottom of the page instead? Don’t freak out. Have you been too generous with yourself on the grocery budget, or in any of the discretionary categories? Is there something that you’ve been categorizing as a necessity that really isn’t? Tweak the numbers, as needed, to correct these issues.
9. Review your budget. If you’re still seeing red, it may be the case that you’re finding it hard to live below your means. If you’re not earning 
enough to cover your necessities, then you’re going to need to get tough with yourself. Cut out anything that isn’t necessary to survival: cable or satellite television, Internet access, smoking (or other vices), eating out, etc. You may need to consider a career change to increase your salary or take an additional job for the extra income. You may also need to swallow your pride and seek help from family, friends or a local aid agency, especially if your situation places you or your family’s health and/or safety in jeopardy.
10. Take your budget seriously. Once you’ve got a working budget, treat it like a living, breathing member of your family. Pay attention to it regularly to make sure that it still paints an accurate picture of your lifestyle. Tweak the numbers as necessary. For instance, you may want to budget more toward groceries during the holidays, but find that you can afford to trim entertainment expenses since you’ll be spending more time at home with family. Watch out for upward creeping numbers as well, as these can often indicate that an old habit, like swinging through the drive-thru for breakfast a couple of times per week, may be sneaking back in.
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