Creating a budget is actually a very simple task. You look at your total income and subtract your expenses from it to find if you have a surplus (you have extra income left over after all expenses are paid) or a deficit (your expenses are greater than your income).
Stay tuned until the end where I share my free printable budget template. Everything we talk about in this article will be listed there for an even easier way to get you started on the right foot with your budget.
Before you begin your budget awareness of where your money is going is KEY! I recommend printing off 3 months of bank and credit card statements and highlighting all unnecessary purchases. This will give you a very good idea of where your money is going. I know people who discovered they spent $1,200 a month at Tim Hortons. Once you're aware of where your money is going you can keep it there if you're satisfied or change how you spend that money (like going to Tim's once a day instead of 3 times). Going through your statements will also let you know what months have more expenses in them and what your fixed expenses (amounts that stay the same month to month like rent and car payments) are every month. I have made a template for this to help you out. You can find it at the bottom of the post.
Next take a few minutes to consider your money goals. Maybe your goal is to get out of debt or save for a vacation/school/down payment. Depending on your goals it will determine what you spend your money on and how restrictive your budget is.
Now that you have a good understanding of where your money is going currently and your goals we can start on the budget. The worksheets at the end of this post will help you. I make a general budget for a typical month and customize certain months with extra expenses like Christmas.
INCOME
To start I first identify any and all of my income streams. This includes your job, second job, side hustle, tips, investments, gift money etc. If you're self employed or work with commission or tips simply estimate what a typical month is. You should have a good idea of this after going through the past 3 months of bank statements. Personally I always stay on the conservative side so I don't overestimate and spend money I don't have to end up stressed and in debt at the end of the month.
TIP: Always use your take home amount, that means the part of your paycheck that actually goes into your bank account after taxes and deductions are taken off.
DEBTS
At this time I also take stock of all my debts. I list each one out along with how much is left to pay, the minimum monthly payment and the interest rate for each one. For more in depth instructions I have an entire post dedicated to this. If you're in debt I would highly recommend you check it out. I give valuable information that helps you identify your debt plus strategies to get out of it quickly based on your personality.
We are going to use the information we just found about our debts in the next section of our budget; expenses.
EXPENSES
Now you can begin listing your expenses. I typically split my expenses into fixed, meaning month to month they stay the same, and variable, expenses that change depending on the month. In the example below my goal for my budget is to get out of debt as quick as possible. Therefore, a lot of my expenses have been minimized or cut out. If you had higher income and no debt or if you were not prioritizing debt freedom you could easily include more money for eating out, shopping, travel, etc.
It's important that you tell your money where to go. Otherwise it will just leave. That is why I recommend accounting for every dollar and having a zero sum balance between income and expenses.
FIXED EXPENSES
A note on debt repayment:
I put debt repayment last in my budget since I don't know when I'm first making my budget how much will be left over after my necessary fixed and variable expenses are paid. Once I have an understanding of how much money is left over at the end of the month (if any) I make sure to include that in my debt repayment category as a necessary fixed expense. That money then goes either to my smallest amount owing or to my amount owing with the highest interest rate. More on that and which option is best for you in my article on getting out of debt.
A note on savings:
You'll notice there is no amount under 'save'. If you read my post on getting out of debt you'll know why. If you're in debt you don't want to miss what I have to say. I have a ton of useful information in there for you! If you missed it read it here.
*debt repayment will be calculated after subtracting the variable expenses
VARIABLE EXPENSES
Lastly we have our variable expenses category. As mentioned previously we are going to put any expenses that change month to month in this category. These include but are not limited to:
Now add your fixed expenses and variable expenses together and subtract them from your total income. Do you have a surplus or a deficit? If you have a deficit you will have to play with the numbers and minimize certain nonessential categories for the budget to balance. After minimizing and removing all you could if you still find yourself in a deficit you could brainstorm ways to earn extra money. These could include; asking for a raise, finding a part time job, getting a paper route, food delivery, and starting a side hustle with a service or skill like yard work, cleaning, photography, hair and nails etc.
CALCULATING DEBT REPAYMENT AMOUNT
Once you're in a surplus you will want to calculate your debt repayment amount. This is the amount you are going to pay on one of your debts in addition to the regular amount to accelerate your repayment and get you out of debt sooner. If debt repayment is not apriority for you you could always skip this step and reallocate the surplus to savings or another category.
Note: This amount will fluctuate month to money as your variable expenses go up and down.
FINAL BUDGET
Now to put it all together:
Now let ensure our budget is balanced.
You can print my free budget templates here!
It has all the categories mentioned in this post plus way more. If you think of an expense that you have that's not listed on the template I have left some blank spaces for you to add it in.
A final tip: Don't be so ridged in your budget that you don't leave money for fun. It will make sticking to your budget miserable or you will spend the money anyways and all the work you spent creating this was wasted. You're also less likely to try to stick to a budget again since we usually fall into the "oh budgets don't really work for me" story. Instead set yourself up for success. Look at how much you were spending on unnecessary purchases each month and come up with a comfortable number that lets you have fun but also be financially healthy.
Stay tuned for my next post about different budget systems and how to stay on track with your budget each month.
Laura
Comments