Updated: Sep 22, 2020
A budget is an organizational system for your personal finances that allows you to track your income, expenses, and spending habits for a fixed time frame (usually a month). Creating a budget for the first time may sound daunting, but I promise it is easier than you think. There are only 4 steps to creating a budget that is perfect for you and your needs/desires. Remember that there is no "cookie cutter" budget plan that works for everyone, so it is important to really dive into your finances and learn about your specific monetary needs, patterns, and behaviors. Personal finances can be perceived as a characteristic of yourself that requires regular TLC and check-ins. Creating your perfect financial plan is about designing budgets around your income and expenses so you can achieve your financial goals with ease. Here are the four steps to creating a budget plan that works just for you:
1. Calculate your monthly income:
The first step to creating a successful budget is knowing how much money you have to work with. This step comes easy for most people because we usually keep good track of PAYDAY.
Your income will act as your base number when creating your actual budgets later down the line. Knowing how much money is coming into your account each month gives you a better idea of how you'd like to proportion and divide your income over your expenses and other desired accounts.
2. Calculate your fixed and variable expenses
This second step is CRITICAL! Most of us do not know the total amount of money going out the door each month for bills, rent, insurance, food, toiletries, etc, and how that number relates to our income.
Knowing what your expenses are will give you more control over how much money you retain and gives you insight on how to improve your spending habits.
Expenses are broken up into two types: fixed and variable. Fixed expenses are those that do not change from month to month, while variable expenses can change at any given time. Write out a list of all your expenses and categorize them into fixed and variable.
**When calculating your variable expenses, it is best practice to estimate the highest number the expense could possibly be. If you maximize the estimates of your variable expenses, then your budget will give you enough wiggle room to accommodate for potential increases in the expense.
Once you have calculated your total monthly fixed and variable expenses, subtract that number form your monthly income to see how much money you have left over to budget for other desired items.
3. Analyze your calculations
In this step, you want to understand the ratio between your income and expenses. If your total expenses are less than 60% of your income, then you are off to a great start.
It is important to analyze what your expenses are, and find ways to reduce them so you have more money to budget into accounts like paying off student loan and credit card debt, saving for a vacation, or investing.
The more knowledge you have about your personal finances, the more power you have to change your financial situation!
4. Budget the leftover amount into desired accounts
The amount of money you have leftover from your expenses are to be budgeted into accounts that are meant to serve your needs and desires. You want to make a plan for every little penny you have leftover so you know exactly "where all your money is going". This will allow your money to work for you and not against you.
Some examples of budget accounts can be repayment of debt, savings, investments, a vacation, new home, car repairs and many more.
You can have as many budgets as you'd like!
I recommend making a budget for "pocket money"/ "leisure money"/ "spending money" because you always want to be conscious about the amount of money you are spending and make spending limits that are appropriate for you. Setting financial limits does not have to be a negative thing, it ensures that you are living within your means, and can help you avoid going into debt.
Check out the Green Line Budget Planners! They are designed to help guide you through the monthly process of creating and maintaining budgets that are unique and personal to you.
If you have any questions, please feel free to reach out to me, and I will be glad to answer them! I wish you happy budgeting <3