Making a Budget 101

When thinking about a budget, expressions of disgust like “gross” and “yuck” often come to mind. After all, analyzing your finances isn’t fun because hey, out of sight out of mind, right! However, if you’re willing to stomach these feelings, today’s newsletter will have some great tips on getting started.

Where Do I Start?

The first step is wanting to improve your life. It isn’t sexy to budget, but it brings order to your spending habits. When you know where your money is going, you can stop playing the “hmmmmm, I hope I can afford this” game.

Remember that a budget isn’t a restriction on spending, it’s a plan for spending. When you have a budget, most of those anxious feelings about money melt away.

Developing a Budget; Step by Step

1. Open Your Bank Statements. Access your bank account and find the three most recent monthly statements. You may receive these in the mail or via online login. These statements break down every inflow and outflow of money to your accounts.

2. Determining your income: Find your recent pay stubs or look through your bank statements to determine your monthly income. If you’re in a job where your income is variable, take your average monthly income over the last three months. You’re doing great!

3. List out your Expenses: List out expenses into custom sections like reoccurring & non-reoccurring. Reoccurring items are consistent expenses like rent/mortgage, subscriptions, and utilities. Non-reoccurring expenses are shopping, meals out, and personal spending/fun. List out all expenses and add them up. Are you spending more or less than you make?

4. What type of lifestyle do you want to live? Are you someone who is trying to buy a new car? Maybe you want to take a fun trip or would like to add to your book collection. Figure out what type of lifestyle you want today and determine if your income/expenses are helping or hurting these desires.

5. Perform a financial life audit: Three valuable tips.

   1. Determine if your expenses are higher than your income. If so, figure out what expenses you could cut out to avoid falling behind. Do you really need that set of green paperclips shaped like airplanes?!?

   2. If you’re planning to buy a home or other large purchase, try to save a little bit of money each month and add it to a savings account (I’ll go over this in another newsletter). Pay yourself first when you can.

   3. Are there any items you don’t recognize or need anymore? Forgotten subscriptions can eat away our income without us even realizing it.

Use a Budgeting Tool

Google Sheets: A simple budgeting spreadsheet on Microsoft Excel or Google Sheets is a great way to visualize your monthly budget. I prefer Google Sheets because you can easily share it with others if needed.

List out your monthly income at the top of your sheet followed by your categorized expenses. Create “goal” and “actual” columns side by side. First, fill in your “goal” column building the lifestyle you want.

At the end of the month, track your real expenses and input them into the “actual” section. This will give you a great idea as to where your money is going and if you’re spending too much in a certain category.

Using a Budgeting App: I used to use Empower (this isn’t sponsored) for years. At the time I was able to track all my spending and investing on one app. The nice touch with Empower is that you can link all your bank, retirement, and credit card accounts in one place. It’s a great tool to see where all your dollars are going each month.

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