If you decide to create a budget, you are already on the right path to managing your money. Because not having one leads you to spend more. The good news is that it's never too late to start building your budget. The most important step is to get started!
Here let’s go step by step. Let's do it!
1. Calculate Your Income
Calculate your net monthly income
Salary that you take home: This is the amount of your income after all deductions. Such as federal and state taxes, contributions, retirement/401k, health insurance, etc.
Extra income: This part of your budget is for the extra money you receive each month. If it fluctuates, enter the average amount. Oh, and don't forget to count what you receive in alimony, child support, tax refund, all the money you receive (other than your salary).
Example: If your monthly salary is $3,000 after taxes, side hustle income is $500, and other sources contribute $200, your total income is $3,700.
2. Determine your financial goals
Set clear savings goals. Whether it's an emergency fund, a vacation, or retirement savings, allocating a portion of your income to savings is crucial.
Example: Aim to save 20% of your income, which is $740 in this case.
Here you must make sure to enter the amount, and the date by which you want to achieve the goal. For example: “Have $1,000 saved in my emergency fund by February 1” or “Pay off $3,000 of credit card debt in 6 months.” Then divide the total amount by the number of months, and then add that amount to your monthly budget. From there you can allocate the rest of your income to your non-essential expenses and wants.
3. List Your Expenses
Fixed Essential monthly expenses or basic needs: This section is for the bills you pay regularly (monthly): Housing (Rent or Mortgage/HOA), Food, Transportation (Car Payments, Public Transportation), Children's school, Tuition, Utility Bills (Telephone, Electricity, Gas, Internet/Cable, Water, etc.), Health insurance and other expenses that you pay monthly. Lastly, the payments on other debts you have, such as: Student Loans, Credit Card, Medical Expenses, etc.
Variable expenses: These are routine expenses which amount may vary each time you pay them. This includes your insurance premiums, home or car maintenance costs,, etc. Don't forget occasional expenses like yearly subscriptions.
Example: Rent/Mortgage: $1,200, Groceries: $300, Utilities: $150, your total expenses is $1,650.
What about what I want?
Well, these are spendings that can easily lead to overspending. But your wishes are important too! Because rewarding yourself can help motivate you to stick to your budget.... Yes, you can still eat at your favorite restaurant from time to time. But plan ahead!
Be sure you're including self-love into your spending plan. Set aside a small amount each month to do something nice for yourself, and get a manicure o a facial. You'll thank yourself later.
5. Finally
When you subtract expenses from your income, and the result is positive…you created your budget and that budget is compatible with your lifestyle! If the result is negative, then you must review your expenses, income and financial goals. In that order you can adjust them. The idea is to maximize your income and reduce your expenses as much as possible. Look for ways to get extra money and cut unnecessary expenses. In the Example: Total Income - Total Expenses: $3,700 - $1,650 = $2,050
Tip: If your basic needs exceed 50%, then draw from the “Wants” bucket.
Adjust as Needed
Periodically review and adjust your budget. Life is dynamic, and your budget should adapt to changes in income, expenses, personal needs and goals. Don’t be afraid to adjust it as your financial situation changes.
Is there a monthly budget template I can use?
You can make it yourself based on the one I show you here or you can use this simple version.
