Jun 3, 2021
How to Make a Budget: An Easy 5-Step Plan to Budget your Money
Figuring out how to budget your money is a necessary move in helping you take control of your spending and work toward your financial goals. It’s essential to find a plan that balances your wants and needs while prioritizing what’s most important to you. Get a better sense of your finances and build a personal budget with these five simple steps.
List all of your income sources
You’ll want to calculate your net income in order to start building a budget. Remember to subtract certain expenses like your 401(k) contribution and tax totals to determine your take home pay. These income sources can include:
- Paychecks
- Dividends
- Interest
- Pension
- Social security
- Rental income
- Bonuses
- Gifts
- Child support/alimony
- Earned income credit
- Tax refund
Determine your monthly expenses
It’s a good idea to keep track of your spending to help you see where most of your hard earned money is going which will allow you to adjust accordingly. Use an app like Hughes' myHUB or a simple pen and paper paired with your bank statements to help you categorize your spending. Start by categorizing your expenses as fixed or variable. Payments that stay the same from month to month like car loans, mortgages and insurance premiums, are considered fixed costs. Expenses that fluctuate depending on a number of factors are considered variable costs. Some variable costs can include:
- Food
- Utilities
- Clothing
- Gas
- Groceries
- Gifts
Break down your budget further and create additional categories that include:
- Basic needs - shelter, food, utilities, insurance, medical bills, debt payments and taxes
- Discretionary spending - vacations, entertaining, gifts
- Miscellaneous - unplanned expenses
Be sure not to use miscellaneous as a “catch-all” category. If your miscellaneous category is more than ten percent of your expenses, you’ll want to review and track better.
Tip: Remember, saving is an expense category. Get into the habit of paying yourself first!
Balance income and expenses
The goal with a budget is to match your income with your expenses to help you control any overspending and allocate more towards saving. The formula is easy, if your income is greater than your expenses, consider contributing more to your savings or goals. If your expenses are greater than your income, you’ll need to make some adjustments and cut costs where needed.
Review and communicate
Once your budget is in place, continue to track your expenses to maintain or re-evaluate your spending. Check for spending leaks and find areas where you can cut costs. Always take a look at your discretionary spending category first when considering shedding some expenses. Don’t forget to review and analyze your budget every month or so to see if your plan still aligns with your goals.
Manage your system
A plan is no good if not followed through, so be sure to refer to your plan regularly and adjust any spending as needed. Got a promotion? Great news! Don’t forget to add any additional income to your list and evaluate your savings. Maintain healthy financial habits like paying your bills regularly and balancing your checkbook monthly. Staying on top of your new budgeting system will ensure you keep your goals at the forefront of your spending.