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Creating a budget is never a fun task, especially if you’re struggling with debt. However, budgeting doesn’t have to be a burden if you change your mindset about why it needs to be created. Learning how to budget money can lead to more than a clearer understanding of your finances, and building a budget can lead to personal and financial freedom. 

By making a budget, you’ll start to see the connection between your spending and your dreams. It may be your dream to own your own home or to travel for months at a time abroad, but for some reason, you always come up short at the end of the month. By creating a budget you’ll see how spending half of your income on takeout meals or paying off the minimum balance on your credit card and accruing interest is eating away at any possibility to pursue your dreams. This is the price we pay when we throw away our salary on short-term satisfaction. Learning how to write a budget can be your saving grace.

Determine why you want a budget 

Before delving into how to budget your money, you should first figure out why you want a budget. By determining the “why” you can begin narrowing down on the goals you hope to achieve. 

The “why” can be anything; do you want to be free from credit card debt before your kids go to college, do you want to retire before you’re 50, do you want to climb Mount Everest, or do you just want to know where you stand financially at the end of the month? 

When you determine why you want a budget, you can begin understanding the need to make certain sacrifices or the need to develop some personal skills that could help you save.

If you want to take a cross-country trip in an RV, maybe you should learn some rudimentary car skills, like how to change the oil, which will save you some money every 3,000 miles. If you want to be more financially independent so that you have more time for your kids, maybe you can learn how to cook healthy meals at home so that you can save money on delivery while at the same time having the energy to spend time with your kids. 

By figuring out the “why”, learning how to make a budget becomes much more manageable.

Look at your current income

Learning how to create a budget means learning how to maximize your income to achieve your goals. In order to utilize your income to the best of your ability, you have to know how much you’re bringing in every month. Now that you’re determined to master how to make a budget plan you need to begin making a list of every dime that passes through your hands.

Your income can come from more than just your monthly wage and you should make a note of every channel of cash flow in that you maintain. Income that you may not be keeping on the books includes money generated from side gigs. If you crochet blankets, teach guitar on the weekends, or are the local Mr. Fix-It, then it’s easy to think of this money as “free” and spend it without regard to your overall budget. 

If you’re divorced or are the sole guardian of a child, you may be receiving alimony or child support. This is a source of income that also needs to be recorded. If you receive government stipends then this all needs to be accounted for, because without it, you don’t know where you truly stand at the end of the month. By adding these different streams of income, you’ll know the hardline of what you can spend without having to delve deeper into debt.

Look at your current expenses

One of the main components of pursuing how to budget is to know what you spend your hard-earned money on. Sorting out where your money is going will let you create a realistic budget. To begin, start with monthly expenditures and then slowly go into quarterly expenses and then yearly. This will give you a pretty good overview of your spending habits and how to proceed with making a budget.

Whether you decide to sit in front of a computer or just a notebook, the first thing you will want to do is gather up all of your receipts and statements. You should have enough of these to give you a broad picture of your expenses, but remember, there are always little transactions eating away at your savings. Your credit card and bank statements will give you a good idea of your food, entertainment, and living expenses, but most likely it won’t show the small snacks that you paid for in cash. So, if you don’t already have a habit of keeping receipts then you should adopt it.

Once you’ve recorded your standard monthly expenses, such as rent or mortgage, insurance, food, utilities, gas, movies, and the normal fare of everyday living, you need to start tracking the infrequent expenses. When Christmas and birthdays begin rolling around, it’s easy to fall into the trap of using a credit card without a plan to pay it off. You could also just be surfing the Internet and you see a once-in-a-lifetime deal on a cruise around the world and just look at the screen and say “why not?” These are the types of expenses that can destroy an otherwise well-crafted budget. 

A budget-killer may not even be an impulse buy, it could be a fee that you just forget about until it’s too late to include it in the plan. These can include car registration and property taxes, or just your annual dental check-up.  

Set a goal 

By now, you’ve decided why you’re making a budget, figured out your cash flow, and are making great strides in your journey on how to budget. Now you need to make concrete goals that you can work towards. With a goal in mind, you can start determining what is valuable in your life and what is just a quick, unnecessary expense. The goals of your budget will affect the decisions you make and where you’ll reduce spending.

Your goals are personal to you, but in the end, building a budget will allow you the freedom to do more with your money. You do want to keep your goals realistic, if you’re making $20,000 a year and you want to retire at 45, you’re going to have to make some hard decisions when it comes to your future creature comforts. However, with a creative budget and sticking to a plan, you’ll be surprised as to what you can accomplish. If you live an extremely frugal life, it’s possible to retire when you’re 45 with low-income wages. 

Track your progress

Part of learning how to budget is tracking your progress because “what gets measured gets done.” By tracking your progress you can see the results of your labor. So, every month, go over your budget and make a habit out of it. You’ll be able to see if you’ve overspent in one area or maybe you’ll see that you’ve been saving on food and gas since you’re not going out to eat as frequently. By checking-in on your plan, you can make small adjustments to it, to either stay on track or actually speed up the timeline for your goal. 

Don’t forget to make adjustments after you’ve paid off certain debts. If you’ve managed to pay off a credit card balance, then remove that item from your budget, just make sure you don’t replace it with something frivolous. Making sure that you stay on top of your budgeting plan and making sure that you’re tracking your progress to achieve your goals will not only motivate you to continue but you’ll soon find the financial freedom that you’re dreaming about. 

Budget-making tips and tricks 

Budgeting doesn’t have to be a horrendous task. Here are a few tips to make a great budget:

Zero-based budget.

After you’ve calculated all of your income and expenditures, you should know where your money is going. You can now “budget to zero”. This essentially means that when the month begins, every cent is accounted for. The way to do this is to add up all of your income and subtract all of your expenses, anything left over goes to savings, effectively leaving zero wiggle room for unaccounted-for money.

Don’t budget alone.

If you’re in a relationship that has joint accounts or your finances are tied together in any way, then you should budget together. When you formulate the budget, it should be together and when you do your monthly check-in it should be together. This will ensure that everyone knows the same information and that there’s cooperation in this endeavor.

Set defined goals.

While it’s easy to say you want to “buy a car” in the future, that leaves too much ambiguity around what you’re actually saving for. You should be more specific when creating your goal, so, instead of saying “I want to buy a car” you should focus it to “I want to pay $50,000 in cash to get the best deal on a car.”

Ideas for how to stay on budget

Learning how to budget is one thing, learning how to stay on budget is another. The easiest way to make sure that you stay on budget is to start by budgeting the essentials first. As long as you know that your home, utilities, and food are taken care of, you know that you can trim and cut from every other area without it altering your life too much.

When making your budgeting plan, you can also account for temporary cuts. You may love the gym, but that $60 coming out of your account monthly can be really damaging. During the summer months, you can plan to cut the gym, workout outside, and not feel too bad because you’re planning on returning in the fall.  

The biggest tip for staying on budget is to freeze your credit cards in a block of ice in your freezer. You’re not canceling them in the case of an emergency, but you’re making it too inconvenient to use them casually, just try not to memorize the numbers before you submerge them in water. 

Starting out with building a budget can seem impossible if you’re dedicating chunks of your income to high interest credit card debt every month. Get a free consultation with a Debt Consultant at CreditAssociates today to learn how we can reduce those monthly payments down to an affordable, more budget-friendly amount.