This is the fourth post in the Creative Savings’ Beginners Guide to Budgeting Series. To read all posts in order, start withWhy You Need a Budget, then continue reading the rest of the serieson this page. You can also check out this post for more than 60 tips that teach you how to manage money better.
Now that you have a handle ontracking your expenses,we can dive rightinto the fun stuff –creating our very first budget!Own this part, because what you work on today will be the turning point to managing your entire finances.
Grab a snack, a calculator, your Income Tracker, and all your monthly bills, then settle in {with your spouse if you’re married}, and start working through today’s post slowly and carefully.
Creating a budget might feel a little bit uncomfortable at first, because we are essentially putting restraints on spending habits that can be really hard to break. But if you commit to this entire process, you’ll not only have an actionable spending plan by the end, you’ll also be able to save some extra money on the side!
Are you ready?Let’s begin.
Breaking Down Your Expenses
We kept our categories fairly broad whenwe talked about expenses in the last post, but nowwe’re going to break them down into sub-categories,and then mentally assign them either a fixed or variable expense label.
Here’s a quick definition of those terms in case you aren’t familiar with them already:
Fixed expenses generally stay the same month-to-month, while variable/discretionary expenses may vary by a little, or by a lot. Examples of fixed expenses would be your housing, cable/internet/phone, any loan payments, and all insurances. Variables are pretty much everything else, because they change each month depending on your needs.
Separating our expenses mattersbecause once we start “playing with the numbers” so to speak,we want to know exactly what we can change, and what we have to leave alone.This will make a lot more sense in a few minutes!
Using a Budget Worksheet is an easy way to figure all of this out. You can print off a printable version, or download an Excel worksheet; but either way, you want to have at least one of them handy while we work our way through this next section.
Download the Excel File {Calculates Automatically!}
How to Use a Budget Worksheet
1. Start by filling in the monthly budget amount for all fixed expenses {these are shaded in grey}.You may need to reference last month’s bills if you don’t remember the exact amount you pay each month. Remember, fixed expenses can’t change very easily, so fill in these numbers in pento signify their permanence.If your number results in some change, round up to make sure you have more than enough saved each month.
Note: If you have credit card debt, stop using your credit card immediately and determine a set amount {higher than the minimum payment} to become your monthly “fixed expense” with the goal of paying off that debt as soon as possible. If you have more than one credit card, focus on paying off the smallest amount first.
2. Now, go through your Budget Worksheet again, and fill out the rest of your monthly budget totalsin pencil.Look through past receipts for an average if needed, but otherwise give each category your best guess for now.You will probably have to mess with these numbers later, so you’ll definitely want an eraser nearby.
3. When you’re finished, add up all totals, and carry the numbers over to the bottom of the worksheetwhere all monthly expenses are listed.You will notice we’ve reverted back to broad categories again so everything is easier to track.
4. Using your Income Tracker, writedown your average monthly incomeat the bottom of the worksheetwhere you’ll find a mini profit/loss section located.
5. Subtract all your total expenses from your monthly income, and write that number down in the big grey box at the bottom.
Evaluating Your Final Budget
Here’s where it gets real.Remember when I said you really need to view your finances as a business?If your income is more than your total expenses – that’s awesome! You have some room to save for extras, and can work on decreasing expenses without the stress.
But if your income is less than what you are spending, it’s time for a budget overhaul.Go back through all your monthly expenses and see what you can drastically reduce or cut out completely.
Variable expenses are much easier to start with, although a fixed expense like cable can be eliminated entirely. Erase and change out amounts as needed, and keep adding up your columns until your current income covers everything you spend. You should not move on to the next step until you reach a positive balance.
There. That’s YOUR budget!
The first month is always the hardest, so don’t be afraid to go back and rework your numbers if you find they weren’t as attainable as you originally thought. Budgets aren’t set in stone, and we can always make a few adjustments.
In my next post, we’ll start using a money management system that will launch your budget into immediate action. Any time a bill comes due, you will have the exact amount of money available to pay for it. You’ll also find the secret tocontrol you money instead of letting it control you!
Are you ready to build your first budget?
{Go to the next step: Create Your Own Money Management System}
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