How to Create a Budget: 5 Simple Steps

The Power of Your Very First Budget

Getting your finances on track is one of the best moves you can make to secure your future. The good news? It really doesn’t need to be overwhelming

Building a new habit is just way easier when you aren’t guessing your first move. Already budgeting? Keep reading anyway. You may have lost a step along the way, so a quick refresher helps.

I Did Not Like Budgeting

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It was the hardest part of my financial journey. I am a spender and a free spirit. Budgeting felt like too many details. The word “budget” almost became a bad word to me.

Then something changed on a trip with my husband, Winston. He told me not to worry about the budget. He said he would take care of everything. You would think that would feel freeing. That is when I realized something. A budget is really permission to spend. Now I am a firm believer.

I use Every Dollar, our budgeting app. It is convenient because your budget lives on your phone. You can enter transactions yourself. Or you can link your bank account and let them drop in. As a result, you see in real time how much you have left in each category. It also gives you a roadmap for your money every day.

Step 1: List Your Income

First, list your income. Think about every stream of money coming into your household. If you are married, do this together with your spouse.

Include everything, such as:

• Both incomes, if you both work
• Part-time side hustles
• Part-time jobs and overtime
• Alimony or child support

Then add it all up. That total is the number you are working toward.

Step 2: List All Your Expenses

Next, list your expenses. Start with your four walls.After that, add other essentials. Insurance and child care are good examples. Then list everything else you spend money on each month. That could include subscriptions and clothes.

Two categories are easy to forget.

• Giving. Giving belongs in your plan. It connects to your heart and character. So, building this habit early is crucial, no matter where you are financially.
• Miscellaneous. Things come up that you did not plan for. That is okay. Just drop them in this category..

Step 3: Calculate What’s Left After Your Expenses

Your income minus all your categories should equal zero. This means every dollar has a job.

Do you have money left over? That is a great problem to have. Even if it is only $38 or $200, give it a name. For example, you can add it to a category. You can even make your miscellaneous category bigger.

On the other hand, you may be spending more than you earn. In that case, adjust your categories. Maybe you shave $100 off groceries this month. Perhaps you cancel two subscriptions you do not use. Keep lowering categories until you reach a zero-based budget.

Be patient with yourself, though. Your first budget may take one to three months to get right. You will tweak it throughout the month. That is normal. After 90 days, it gets much easier.

Also, expect each month to look different. One month may have a holiday. Another may include summer camp for the kids. So, your budget will change every month.

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Step 4: Track Your Transactions All Month Long

Fourth, track your transactions all month. With EveryDollar, you can enter them manually. Or, with EveryDollar Premium, you can connect your bank. Then transactions drop in automatically. From there, you simply drag and drop them into categories. You can do this on your phone or your laptop.

The real-time view is very helpful. Winston and I use it all the time. We might see we have room to eat out one night. Or we might see the grocery budget is nearly gone. In that case, we make cheap meals, like spaghetti. In other words, you can plan around the money you have left.

Tracking also helps you stick to your budget. A budget may sound good in theory. However, you have to follow it in real life. To do that, you need to know what is left in each category.

In the beginning, it can seem like one more thing to keep up with. But once you get used to it, you can finish it in just a few seconds. The best part is that it helps you stay on top of your spending.

Step 5: Make a Budget for Next Month

Finally, make a budget for next month. Every month is different. This is especially true if your income changes, as mine does with commission. So, plan before the new month begins. Ideally, finish before the first of the month.

Every dollar makes this easier. It duplicates last month’s budget, so you never start from scratch. Then you change what needs changing. For example, I am earning less this month, so I lowered my income. Our giving is 10% of our income, so it changes too. Our savings also shift depending on what is happening in life. After that, we decide how to divide what is left.

This may feel overwhelming. It really is not. Once you find a rhythm, a new budget can take about 10 minutes. At first, it may take longer. That is normal.

Take Control With Your First Budget

Many things in life are out of our hands. We cannot control interest rates. We cannot control inflation. We cannot control grocery prices. However, we can control what we do with our income. That is why I love budgeting. It puts you in the driver’s seat of your own life.

So, download Every Dollar, put it on your phone, and create an account. It is one key to unlocking your wealth-building journey. Then start your first budget today.

Once your budget is ready, tackle groceries next. They are vital, and they are costly.