Budgeting is hard; I personally struggled with it for a long time.
Sometimes that came from not earning enough money that month (like when I was working my way through college and my car broke down) and other times it came from not planning better (like when I spent more than I should have going out to eat).
It took me a lot of practice and discipline to get better at planning, but I wish I had gotten better at it sooner because it is the single most important part of personal finance.
Whether you earn thirty thousand or a hundred thousand dollars, if you don’t have a plan for your money, you and your loved ones could end up in financial disaster.
Remember: budgeting is a plan for your money.
Planning gives you a strategy and a way to fight issues head-on. But, like we said, planning can be scary...don’t worry, we’ll tackle this together.
Now, grab a paper and pencil and let’s get started with the 5 simple steps to making a budget!
The 5 Steps to Making a Budget
- Determine your income
- Write down all income sources from the last month like: your job(s) or savings interest.
- Add all of that up and call that your Total Monthly Income.
- Tally your expenses
- Carefully review and write down all of your expenses like: Food, Housing, Transportation, and anything else you think is important.
- Make sure you don't miss any irregular payments like: vacation, medical bills, or family gifts that you want to account for
- Now add up all your expenses and you have your Total Monthly Expenses!
- Calculate your budget
- Subtract your Total Monthly Expenses from your Total Monthly Income and now you have your Monthly Budget Balance!
- If your balance is negative, it means that your debt is going to grow over time.
- If your balance is positive, it means you’re going to save money each month.
Check out our Budget Tool to see how making changes to your budget can really impact your financial wellness. If you're able to put a little away each month, it can make a big difference. On the other hand if you didn't have a balanced budget for 12 months, you'd probably have to adjust your habits or borrow money. Take a look at how compound interest and a growing balance can add up in cost.
- Define specific goals
- Depending on what you are you doing these may vary -- for example, saving for a down payment on the house, paying off a car loan, or ensuring that you have enough for Christmas gifts for the family
- Make a plan
- Now that you know your current budget and have goals in mind, you can start planning on how to reach them.
- This will help protect what matters most to us
If you’re able to set money aside each month to reach your goals, that’s great! We can put that money in a savings account that earns money for you. With enough time and money put away, it can really start to work for you!
If money is tight and you can’t save right now, that’s okay! Life happens; we know it first hand.
Depending on how much money you need and how long you need it for, there are different financial products that can be useful--we'll go into detail about those options later.
Now that we know where we are with our finances, we can control them and make a plan to take care of our loved ones.
That's why we plan: to protect what matters most.