You may have heard that creating a budget is one of the most important things you can do to get started with managing your money better. And it’s true! But figuring out how to make a budget besides “writing down my expenses and hoping for the best” can seem tricky. Fortunately, you’ll see here that it’s one of the simplest finance steps you can take! And bonus tip: the free monthly budget template we have for you will rock your financial socks.
Why is creating a budget so important?
Essentially, there’s no way you can control where your money is going if you have no idea where it’s going.
By tracking your expenses, you’ll easily be able to see where you may be spending more than you thought you were – and, in turn, where you may have to cut back.
This is especially important if you find yourself spending more than you have each month. You should do everything possible to avoid going into debt but if you keep overspending each month, the problem is just getting worse before it can get better.
Budgeting is also great for giving you a concrete financial target.
It’s great if you’ve decided you want to save more or pay off your debt more aggressively, but without an actually achievable goal to aspire for, it’s going to be very difficult for you to meet your objectives.
That is, instead of telling yourself “I want to pay off all of my credit card debt”, having a budget allows you to say “I’m going to pay an extra $500 each month on to my credit card” while planning exactly how to do it.
But I suck at money!
Well, time to pull on your big girl/boy pants and get started.
We’ve pretty much all sucked at money at some point. But we’ve all had to figure it out to stop digging ourselves into a financial black hole.
(Adulting is the best, right?)
While it may seem overwhelming at first, making and maintaining a budget quickly becomes easier as the months go on.
Especially if you just follow the steps below! Which, as you’ll see, show you just how simple it really is to make a budget.
You may have to spend an hour or so the first time you do this figuring out the best way for you to keep track of all your expenses.
But you’ll soon see next month that because you did the hard work that first month, it’s now much easier for you to figure out where you’ve spent everything.
Not only that, but it becomes really motivating to do your budget each month as your financial situation improves as you’ll easily be able to see your progress.
So the fact that it involves a teensy bit of work now should absolutely not stop you from getting started down the road to good financial management.
How to make a budget (hint: use the free monthly budget template)
At the end of the day, all you really need for creating a budget is the numbers for where all your money goes in and where it goes out.
Of course, you can create your own table for doing this and make your own budget categories and so on.
But we’ve done the hard work for you!
Step 1: Figure out your after-tax income
If you’re using the free template budget, this is where you fill in the first section.
Any salaries, side hustles or extra money you may have earned along the way should be noted – less any tax.
Once you’ve finished that, add the figures to the “Actual” column. Done!
Step 2: Calculate your expenses
This is the part that will take the longest, but it certainly doesn’t mean that it’s hard.
Importantly, the template has all sorts of different categories where you can put your different expenses.
This is hands down the best way to make sure that you’re tracking your money properly and holding yourself accountable for your spending habits.
For example, while you may have spent a certain amount on food, it’s good to divide this into “groceries” and “restaurants” as per the template.
This will help you see where you could perhaps spend less money on going out to eat – or even give you a hint that it would be a good idea to try to save money on groceries, if you’re over-spending in that area.
RELATED ARTICLE: HOW I SAVED $300 ON MY GROCERY BILL IN ONE MONTH
Similarly, your different utilities should all be noted down separately.
This then becomes a great way to realize that you’re actually, say, spending too much on your cell phone and could save some money on it. Or maybe it’s time to cut the cord on cable.
Once you’ve gone through every single thing that you’ve bought, add all of the numbers to the “Actual” column.
Step 3: Work out your savings
You’ve probably heard that everyone should have an emergency fund of three to six months of savings – just in case.
So this is the part of the budget where you’re looking after your long term goals.
Take a look at how much you’ve contributed to your 401(k) or how much you’ve put towards growing (or starting!) your emergency fund this month. Anything that adds to your financial future should be put into the last section of the budget.
Step 4: Figure out your total position
At the end of the template, you have the following calculation:
Income – Savings – Expenses = _______
The ultimate aim is for your overall answer to this to be zero, as this means that you’re only spending and saving exactly what you earned this month. Which means that you’re not going into debt.
Here’s a super basic example: say that you earn $3,500 per month in after-tax income.
You spend $3,000 on all of your expenses for the month and contribute $500 to your savings goals.
$3,500 – $500 – $3,000 = $0
So congratulations, you’re not spending more than you have!
Unfortunately, you may relate more to this example: you still earn $3,500 per month and still wanted to maintain your $500 contributions to your savings.
But the car broke down so it had to be repaired and you went out for dinner a couple of times to celebrate a few friends’ birthdays. And without realizing it, you spent $3,250 this month.
$3,500 – $500 – $3,250 = -$250
Whoops. You overspent this month by $250 which had to go on to the credit card. And now it’s wracking up interest – which is going to cost you a hell of a lot more over the next few months if you don’t pay it off as soon as possible.
You know, in addition to the other expenses you have to cover…
So if this is your first month doing this calculation and the result is zero – congratulations!
But you’re doing the right thing in terms of only spending what you have and managing your money well.
However, if the result of the calculation is a negative figure, then you have some work to do.
Which isn’t terrible, as this is exactly the reason for starting a budget – to get a better idea of where all your money is going and to fix any issues.
And this is exactly what you’ll be doing next month in the next step!
Step 5: Tweak your budget goals for next month
You’re now going to take another copy of the budget template and start to fill in the “Budgeted” column.
You should have a good idea about how much of your money is going to each category based on last month’s budget.
This should also have made it clear to you just where you can make some changes to meet your money goals.
So the “Budgeted” column is going to say how much you’re aiming to spend in each category.
It may be similar to last month if you’re happy with how you did. Alternatively, you may want to look at increasing or decreasing certain categories if you think improvements can be made.
But I don’t know how to set up my budget goals!
It can definitely be tough to know how much to spend in each section.
I mean, how are we supposed to know what’s the “right amount” of savings or whether we’re spending too much on important (or, uh, unimportant) things?
Luckily, there’s a super simple trick to help you work it out!
The 50/30/20 rule is a great, easy guide when figuring out how to budget.
Not only is it excellent for quickly seeing how much you should spend in each category, it’s also perfect for avoiding debt as it means that you’re only using money you actually have.
FIND OUT MORE HERE: HOW TO BUDGET: WHY THE 50/30/20 RULE WILL BE YOUR ULTIMATE BUDGET PLAN
I need some help figuring out how to save money!
So you’ve worked out the numbers and seen that you need to save in some areas…you’re just not sure how.
Why not check out this list for some inspiration on where you can easily make some spending cuts:
- Try using Trim, which is a totally FREE app that looks at your subscriptions or ongoing bill payments, like your internet, cable or car insurance, and renegotiates them automatically to save you money.
- Take a look at LendKey for refinancing your student loans. It’s completely free, you can see what’s available to you in about two minutes and it can save you an average of $10,000 on your student loan repayments.
- Make sure you’re not spending too much on your car insurance by checking out other policies through The Zebra.
- Or maybe see if you can save money on your health insurance with eHealth Insurance.
And for some extra ideas, here are some other articles that may help you with this:
- HOW TO SAVE $1,000 IN 3 MONTHS (AND STOP LIVING PAYCHECK TO PAYCHECK)
- 17 THINGS TO STOP BUYING TO SAVE MONEY
- HOW I SAVED $300 ON MY GROCERY BILL IN ONE MONTH
But I can’t make any more spending cuts!
If you’re not quite able to meet your money goals, another way to work towards them is to increase your income.
This can also be a great way to make more money if you want to, say, start increasing how much you’re putting towards your savings!
If you’re keen on trying this, you’ll probably be happy to hear that it doesn’t necessarily mean that you have to take on a second job. In fact, there are a ton of ways that you can make extra money from side hustles.
Many don’t even need you to leave your home and some even let you make money from doing what you’re already doing in your day-to-day life!
- HOW TO MAKE SERIOUS CASH CLEANING OUT YOUR OLD STUFF
- HOW TO MAKE GREAT MONEY FROM YOUR LOVE OF ANIMALS
- 9 OF THE BEST SURVEY SITES TO MAKE MONEY ONLINE
- 12 EFFORTLESS WAYS FOR YOU TO MAKE MONEY WHILE SHOPPING
And then for some of the big guns…
- HOW TO BECOME A VIRTUAL ASSISTANT (AND MAKE $50,000+ WORKING FROM HOME)
- HOW TO GET PAID TO TEACH ENGLISH ONLINE (AND MAKE $22/HOUR)
- HOW TO START A BLOG IN LESS THAN 15 MINUTES (and for just $3.95/month – including a free domain!)
Step 6: Keep tracking your budget each month
It’s important that you keep going with your budget tracking, planning and tweaking each month as that’s when you’ll really start to see great results.
It will help you see your spending, saving and earning trends over time, so you’ll be able to see how well you’re going at improving your financial situation – or perhaps where you can continue to improve.
It’s also great motivation to keep on budgeting!
Sure, it can be tough to say “no” to going out with your friends for dinner on Friday night because you don’t want to spend your money that way.
But when you check your budget at the end of each month and see that not spending that cash allowed you to put some more money towards your credit card debt, that extra effort becomes so worth it.
And just imagine checking your budget after six months when all that extra cash has allowed you to wipe that debt altogether!
A good way to push you to keep doing this is to download and print at least 12 copies of the budget template, then keep them in a binder so that they’re kept in the same place.
That will make it super easy for you to open the binder at the end of each month to write down your expenses and set up your budgeted amounts for the next month. It will also mean that you can easily see how you’ve been going over the previous months.
Just make sure that you keep your goals realistic, so that it’s more likely that you’ll reach them, and keep budgeting consistently.
After all, like any good habit, that’s the best way to make sure that it sticks!
And keeping your finances under control is absolutely one of the best habits that you can have.