How to Make a Budget


The easiest way to make a budget, and probably the most effective, is to use good budgeting software. But you can just set up an excel spreadsheet, or even set up your personal budget on paper with a calculator on hand. However you to choose to go about it, the fundamental steps are the same:

1. Figure out what your goals and priorities are. There is a reason you are interested in setting up a budget in the first place – what is it? Are you just trying to make ends meet? Are you saving for a new car? Are you just trying to save? Setting up and keeping up with a budget takes work and discipline so you need to motivate yourself. Write your goals down along with why they are important to you. Then track your progress for each goal each time you work on your budget.

2. Figure out and track your take home income. You’ll want to have accurate monthly figures. If your income is variable (maybe you are on commission), estimate low.

3. Figure out your monthly expenses by category (utilities, rent/mortgage, entertainment, etc) and break them down by sub-categories. The more detailed your categories are, the more useful your budget is. For example, if you discover that you are spending a lot in the entertainment category, you want to be able to say to yourself, “I should eat out a little less” rather than “I should have less fun.” Having a sub category for “Eating Out” makes that easier.

4. Keep track of everything. You have gone through all of the work of making your budget, use it! Where can you make adjustments in your spending? Should you set the AC thermostat a little higher? Maybe buy generic cereal? How close are you to your goal or goals?

A budget is an essential tool for planning your life and achieving your goals. So why don’t more people take the time to set one up and use it? Probably because it takes thought and work to set it up, and discipline to get in the habit of keeping up with it.