HOW TO CREATE A BUDGET FOR SUCCESS
Updated: Dec 27, 2022
If you want to save some time you can watch my video!
I’m going to walk you through exactly how to create a budget so you’re successful.
I use a monthly budget that I update regularly to create financial freedom and success in my life.
You can learn how to budget by using the steps below.
Before you start budgeting, download a budget spreadsheets.
I like to use google sheets its easy to understand and i can access it from my computer or phone whenever i need to. You can always go more traditional and use pen and paper.
Once you have your budget spreadsheets ready, you can move to step 1!
Step 1: Calculate your monthly income
To create a budget, first, you should calculate your income. List all of your income on our excel spreadsheet or paper. This step is really important. Don’t leave anything out (like rental income, dividends, or side job). Include all sources of income.
Your income is what you’ll subtract your expenses from.
For a lot of people, this is simply the money they take home from their salary. But if you are a business owner or if you have additional income from a side hustle, you will want to include all of your income on your budget.
Try your best to estimate what your monthly income will be for this month. If your income is inconsistent, take the average of the last three months income and use that as your income.
Here’s an example.
At the top of the budget spreadsheet list your income, line by line:
1. Income
Greg has: Take home pay from main job: $1,500
Side job income: $500
tips or gifts income: $200
Total Income:$2,200.00
That's it!
Step one was easy right!
Step 2: Add up your fixed monthly expenses
Next, you need to list out all your monthly expenses.
To do this, start by listing your fixed expenses (also known as non-discretionary expenses). Your non-discretionary expenses are expenses that you must pay. Include debts in your non-discretionary expenses, too.
Examples include your rent/mortgage, gas, water bill, groceries, car payment, and student loans (think monthly bills and living expenses that are absolutely due during the month).
If you’re not sure what your expenses are, check your bank account statements from the past 1-3 months and use the average number for each expense category. Depending on how messy your finances are, this task may seem daunting.
But it’s really important to use exact numbers because it’ll make your budget completely accurate.
Going on with the example from above, your expenses should be listed out, line by line, like this:
2. Expenses
Greg has:
Rent: $550
Electric Bill: $50
Gas Bill: $30
Water Bill:$20
Groceries: $350
Student loan payment: $100
total: $1,100.00
It’s better to be more inclusive when you’re getting started. Break out every line item as an expense in your budget. You can always combine later.
This will help you stay on track more easily.
Once you have your fixed expenses listed out, I want you to stop and move on to step 3.
Step 3: Set financial goals
Before you add anything extra to your budget (like entertainment), I want you to pause and take an extra step towards setting some financial goals.
The reason this is important is that it will give you a plan and help you prioritize what’s important to you, instead of just going about your normal day-to-day spending.
So, write out your financial goals (I have tons of videos on financial freedom and how you can start today with three easy steps. link to video below and i will throw it up here in the top). If you haven’t written out goals before, a good place to start is by looking at the vision you have for your financial life.
Do you want to be financially successful? Do you want to have wealth? Do you want to be debt free? Think about what you want and think about where you are right now. Then, determine your personal financial goals that you want to set for the short-term that you’ll include in your monthly budget.
(start with planning one year, then plan two, then three then, five. It gets a lot easier as time goes on and you can alway change stuff around if you wanted to save for a house but now you would rather build up your 3-6 month emergency fund first thats ok)
or get out of debt that's fine too jut make sure you update your budget periodically.
Examples of financial goals:
– Get out of debt
– Build a 3-6 month emergency fund
– Fully fund a retirement account
– Save for a down payment on a house
Think about what you want for your financial life. Write down your financial goals.
After you’ve written out your financial goals, begin to think about them as “expenses” and enter them into your budget. By thinking of your financial goals as expenses, you’ll pay them monthly. This will get you in the habit of saving for your financial goals, which is necessary for success.
Adding to the example above, it would look like this…
2. Expenses
Greg has:
Rent: $550
Electric Bill: $50
Gas Bill: $30
Water Bill:$20
Groceries: $350
Student loan payment: $100
Emergency fund savings: $200
house Savings: $200
Debt repayment: $200
total $1,700.00
Note that these are treated as “expenses” even though you wouldn’t normally think of your savings as an expense. For your budget, I want you to do just that. Pay yourself first and get ahead in life faster.
A good thing to remember is that a budget is strictly made up of income and expenses — it’s only looking at your cash flow. Money in and money out.
Its that simple!
Step 4: Determine your discretionary expenses
Now, you can add in the extra stuff for your discretionary expenses.
It’s third on the priority list (after mandatory expenses and financial goals).
Your discretionary expenses are expenses that you currently pay for, but that are not essential.
Examples of discretionary expenses include entertainment, dining out, gifts, vacations, personal care, and clothes. These are costs that can be adjusted based on what you can afford.
Notice that they come after your fixed expenses and financial goals. It’s important to prioritize your financial health over unnecessary things, such as entertainment and vacations.
Building off the example above, your expenses would now look like this…
2. Expenses
Greg has:
Rent: $550
Electric: $50
Gas: $30
Water Bill:$20
Groceries: $350 ------------------------------------------- Student loan payment: $100
Emergency fund savings: $200
Car Savings: $200
Debt repayment: $200 ------------------------------------------ Dining out: $75
movies: $50
Other: $150
total: $1,975.00
Now, you’re done with collecting data. You can move on to the fun part…
Step 5: Subtract your income from expenses
Now, subtract your expenses from your income.
Following the example above:
Total Income: $2,200.00
- Total Expenses: $1,975.00
Greg has a extra: $225.00 If you get a positive number like this one, this means you make more money than you spend (woohoo). congratulations!
Now, you can go back to your budget and adjust your numbers if you need to. For example, maybe you have a surplus of several hundred dollars. You could put more into savings or put more toward your debt pay off. You want to give every dollar a mission in your budget, so you’re completely planning out what each and every dollar is for.
If you break even, this means you have exactly enough money, but no margin. You may want to adjust your budget to give yourself some margin in the form of a “discretionary” category in the event that things come up that you didn’t plan for maybe one of your utility bills is higher then expected.
If you get a negative number, this means you’re spending more money than you take home (not good). If your number is negative, adjust your budget by decreasing some of your discretionary expenses or find a way to increase your income. A way to decrease your discretionary expenses is to spend less on entertainment, dining out, or other non-essential things. Make sure your financial goals are being met before spending on discretionary items. For example, it’s an unwise financial choice to go on a vacation if you don’t have an emergency fund.
Whatever your number, there is power in knowing. It’s the first step toward planning your financial future.
You’ve now done the hard stuff. All you have left is monitoring and adjusting things.
Step 6: Implement, monitor, and adjust your budget
Finally, you need to implement, monitor, and adjust your budget according to how your life plays out.
I recommend scheduling a “budgeting meeting” with your spouse(if you have one) to talk about your budget regularly. I do a financial meeting weekly, which works because it’s often enough that I check in and re-tabulate how it’s going, but not too often that it becomes a daily task. I set aside an hour Sunday morning while drinking a cup of coffee) to look at my accounts and make any changes to my budget. This is a great time for my wife and I to go over our budget together. The important point is to check in regularly. This will help you implement your plan and stay on track.
As you monitor your budget, reflect on the process, and make changes as needed, keep going and let your budget be the system that helps you achieve financial success.
A FINAL NOTE!
The first couple of months of budgeting are rough. but it will pay off in the long run by paying down your debts and increasing your savings while giving you more opportunity to achieve your own financial goals on your life.
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