5 Steps to Create a Simple Budget

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Day 10: 30-Day Financial Wellness & Home Ownership Series

Now let’s go a little deeper into creating a simple budget system for your household. A couple of things to remember: setting up your budget is the easy part. From here on out, you’re inputting your numbers, making adjustments, etc. But the hard part may be getting through the mental hump of following a budget especially if you’ve been winging it for a while.

Don’t beat yourself up. Give yourself time to adjust. But you do have to actively and consistently work on your budget at least once a month in order to change your mindset. Remember, we’re on a beautiful journey.

Earlier in this series, I asked you to do the following:

Write down your total income from all sources (i.e., job, side business, child support, etc.).

Create a list of your everyday expenses from the last 30 days. These items include things like groceries, fast food, entertainment, etc. You can drop these expenses into a spreadsheet like Excel or simply write them down on a notepad. In an upcoming post, we will look at how these expenses add up and where you can cut to save money.

Gather all of your bills including any variable expenses you may have like quarterly insurance payments.

Start an organization system for each of these bills. If you have paper copies, create a file folder for each company or creditor. If you have electronic copies, also start electronic folders for each of your bills. It’s important to develop an organized system so you can make payments on time and understand how much you’re paying out each month.

5 Steps to Create a Simple Budget

Step 1: Choose a system for Budgeting – paper or online.

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I use a Google spreadsheet where I input my numbers manually. This is a little more work but it helps me to understand my money.

A quicker way is to use online apps or websites that include Mint, EveryDollar, etc. These companies will allow you to set up automatic transfer of your money data from your bank, credit card companies, etc. They also perform other automatic calculations for you.

If you’d rather go the paper and pencil route, feel free to download my simple budget checklist! It will get you started if you’ve never created a budget before.

Download it. Print it out. Write in your information. Keep it in a folder.

Step 2: Input and calculate your income, expenses, and savings.

If you’ve done items 1 and 2 listed at the beginning of this post, then you should have these handy.

Input your income from all sources. You can input this number just as a combined total or you can take the additional steps in listing each source individually. Taking this extra step helps in keeping track of income from all sources.

Input your expenses which include utilities, debt, mortgage/rent, groceries, etc. Each expense should have separate line so you can clearly track how much you’re spending monthly on each.

You’ll also want to include monies that you’re allocating toward savings whether it be your emergency fund, college fund, retirement, etc.

If you haven’t set up your spreadsheet to calculate your income and expenses automatically, you should do so to make this process easier and quicker. If you’re using an online source, then your calculations will be done for you.

Step 3: Separate expenses by category.

I like to take the simple extra steps of creating separate categories for my expenses. This allows me to get an even better understanding of how my money is working for me by breaking everything down.

For instance, utilities can be broken down into electric, gas, water, etc.

For savings, this can be broken down by giving each a specific name similar to its purpose – emergency fund, vacation fund, new car fund, etc.

Again, make sure these calculations are done automatically for you to save time and to increase accuracy.

Step 4: Review your budget on a regular basis.

Review your budget each month to make sure you’re capturing all of your income and expenses. Leave no stone unturned.

Set financial goals for yourself to stay on track.

Are you in the red or black? If you’re in the red, determine where you should cut so you can balance your budget each month. The key is to give every dollar a purpose and end up with a zero balance.

Don’t forget to include gas and spending money in your budget.

Step 5: Start inputting next month’s projections.

To make budgeting simpler and to get ahead of yourself, begin a spreadsheet for next month’s projections. Every month will be different because you’ll need to account for birthday or wedding gifts, family trips, etc.

Looking ahead can give you an early glimpse on how much to set aside for each line item excluding utilities, mortgage/rent, or car payments where the payment amount is set by the company.

*Bonus: Create a filing system.

Keep track of your finances. Always know where you stand.

There are two ways to do this – paper filing and/or electronic filing.

You will save yourself so much time if you create a system for yourself whereby you file your documents immediately after payment. This is also crucial for tax time so you won’t be scrambling to look for important documents that could save you money on your tax bill.

I use both a paper and electronic filing system. But I have very minimum in paper. I keep at least one paper copy of every account I have for quick reference. The rest are filed electronically in separate folders on my computer. Each time I’m alerted that a bill is ready to view, I save the PDF version in the electronic folder. My files are backed up through Dropbox.

You can open a Dropbox account for free and given a certain amount of storage. If you only use that storage for the filing of your financial documents, then you should have ample space. However, if you begin to save photos there, for example, you’ll quickly run out of free space. You have the option to purchase more space for a monthly fee or you can pay for an entire year.

The key is to keep a backup of any files you have on your computer either using an external hard drive or a source like Dropbox. You don’t want to lose your files or family photos for that matter – bonus, bonus tip…:-).

Remember, you can download my free printable budget worksheet by clicking below.