Creating a Budget: Your Tool for Achieving Your Financial Goals

Budgeting is often associated with restriction or deprivation. In reality, having a plan for your spending and savings leads to financial freedom. If you’re looking to buy a home, pay off debt, start an emergency fund, or you simply want to spend less money; creating a budget is key because a goal without a plan is nothing more than a wish.

The goal of budgeting is to give your money a job. Here’s a process and a tool you can use to create your own budget, or roadmap, for your money.

Set Goals

Your budget will obviously include your bills and monthly expenses, but it should also include any future goals you may have. Are you saving for retirement? Do you need to start or add to an emergency fund? What about your children’s college fund or that international vacation you’ve always wanted to take? You should account for all of these goals within your budget. 

To create a realistic budget, you should also include fun and wants, not just needs and long-term goals. Dinner with friends, music and television subscriptions, and anything else that brings you joy should be part of your budget. Again, deprivation is not the goal.

Track Your Spending and Income

When first creating a budget, you may underestimate how much you actually spend each month. To ensure your budget’s accuracy, you must know two things: your monthly income and monthly expenses.

The best way to get started on the budget process is to tally your expenses from the last 3, 6, or even 12 months. Use our Budget Planner as part of this process. You can also do this by hand if you prefer. This will allow you to calculate your average monthly expenses and analyze your spending.

There may be some expenses that you only pay once a year or maybe every six months or once per quarter (car insurance, for example). Write those down too or track them in the Budget Planner.

To create a budget, you need to know your income. Gather your most recent pay stubs so you can calculate your total monthly income. Make sure you’re factoring in income from side jobs as well.

Identify Your Savings Goals

With this budget process, we prioritize savings. So make a list of your savings goals for the year. Do you have an emergency fund? What about saving for home or car repairs? Do you need to save ahead for Christmas gifts? 

Think of the necessities that you need to save for and also the fun things you want to save for—a vacation, a new house, or a new car, maybe. Figure out how much you need for the year to meet those goals and divide by 12. That’s the number you will need to allocate to savings each month to reach your goal.

Also, keep in mind that extra payments toward debt are considered savings. Since you will pay off debt ahead of schedule, you are essentially rewarding your future self. Factor in additional debt payments (beyond the monthly minimums) into the savings portion of your budget.

Create Your Budget

After tracking and analyzing your spending, you’re now ready to create your budget. You can use our Budget Planner to follow along with the process:

Note: You know your money best. Be sure to adjust the frequency based on when you receive your income, when your expenses hit and how you want to plan your budget to fit your lifestyle.

1. Using the “Income” tab, enter your net pay (amount after taxes and other deductions) as well as any other income you receive throughout the month.

2. Using the “Expenses” tab, fill in your fixed and variable expenses and identify the frequency. You can add more rows for expenses as needed.

3. Also under the “Expenses” tab, be sure to add a row for the savings goals you’ve identified and the monthly amount that you’ll need to allocate to each.

4. If you get through the process and have a positive remaining balance, then you have a choice: you can either increase the funds you allocate toward savings or increase your budget for spending in certain categories.

5. If you get through the process and have a negative balance, then you will need to cut your budget in certain categories. We recommend that you cut from spending and not savings, if possible. Take a look at the categories you’ve budgeted for, and challenge yourself to reduce optional spending.

Revisit Your Budget Regularly

Think of your budget as a living, breathing plan. So you can try out your ideal budget for a month or two, monitoring your expenses on a weekly or monthly basis to ensure that you’re not overspending. Make adjustments as needed. You have to find the right plan for your money that works for you.

The first few months of budgeting may be challenging, but it becomes easier over time. You will find it rewarding when you start to see how following your budget is helping you pay off debt, save money, and come closer to realizing your financial goals.

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