creating a budget essay

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The Complete Guide to Writing Your First Budget

I’m going to tell you the secret to getting control of your finances. Ready? Do a budget. Yeah, I know. You’re rolling your eyes. Nobody wants to do a budget. You might not know how to write a budget. But I really believe that a budget is the most important tool for you to use to reach financial freedom. It doesn’t have to be so scary or overwhelming. I’m going to walk you step by step through how to create your first budget.

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What is a budget?

A budget is a written plan that tells your money where to go. Writing down a budget helps you align your spending with your goals. With a budget, you will be able to know where every single dollar you make is going and prioritize your spending.

Financial Goals are Important

Set your financial goals before you start trying to write out a budget. It will be much harder to know where to send your money if you don’t have a master plan.

Your financial goals need to align with your life goals. What do you want to achieve? Think about your dream life and what your financial situation would look like. Then set your goals to align with reaching your dream life.

Once you know what your goals are, you’ll be able to prioritize categories in your budget. You can cut out spending that is no longer important to you so you can put money toward reaching your goals instead.

Paper vs Excel vs App

You will find you have a preference on where you keep your budget. I would recommend just writing your budget down on paper to start, but I’ll go through a couple options here that can make budgeting more convenient. Find the method or a combination of methods that make sense to you and help you budget efficiently and effectively.

Good old fashioned pencil and paper is the simplest way to get started budgeting. Just grab a notebook or planner to keep your budget in and get started!

I personally keep my budget in an excel spreadsheet. Spreadsheets are kind of my thing since I do them for a living (I’m a CPA) so I really didn’t think about where I wanted to keep my budget. It has worked out pretty well for me though. I don’t have to worry about doing my calculations wrong since Excel will do it for me. My budget spreadsheet is kept in my Dropbox account so I can access it on any of my devices at any time.

There are so many apps you can download to do your budget and have across your devices. These can provide a little more structure than creating a budgeting from scratch on paper or in a spreadsheet.

Dave Ramsey has a budgeting app called EveryDollar . It is based off a monthly budget method and the envelope system. There is also You Need A Budget , which is an entire financial management system along with the app. Mint is also a popular money management app. There are tons of options, just try some out until you find something you like. There’s no wrong option here!

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How do I create my first budget?

The first step of actually writing out your budget is deciding what period you want to budget for. A lot of people budget on a monthly basis. You can also do a budget per paycheck, biweekly, or weekly. Pick whatever period makes the most sense for your situation. I get paid on the 15th and last day of the month, so I budget per paycheck.

Once you decide what your budget period will be, write down your income for that period. If you have a variable income, choose the minimum amount you make on average. You want to be conservative if you aren’t guaranteed the extra money. If extra money does come in, you can add it to your budget later.

Make sure you take into account all forms of income. Paychecks, reimbursement checks, bonuses, etc. You don’t want to leave anything out or you’ll end up spending it on something that doesn’t align with your budget and your goals.

Once you know what your income is going to be for your budget period, you can start to calculate your expense categories.

The Zero-Based Budget Method

I always do a zero-based budget. The zero-based budget method is when you budget out every single dollar you have coming in. When you total up everything for the month, your income minus all your expenses and payments should equal zero.

Doing a zero-based budget forces you to give every dollar a job. It’s much easier to waste money on things that don’t put you closer to your goals if you don’t give every dollar a purpose.

What are my expenses?

Once you decide what your expense categories are going to be, we’ll use the zero-based budgeting method to allocate the rest of your income. Sit down with a calendar and write out a list of all of your required bills and when they are due. I’m talking things like rent, power, water, Netflix, car payment, etc. These are required to be paid, so all of these are your first expense categories.

Next, think about all the other things you spend money on during the month. You’ll need a grocery category and a gas category (most likely). If you eat out regularly you will probably want a category for that. I have a category for pet supplies. Create a separate category for everything you buy within a month.

This step can be really hard if you don’t have a good idea of what you spend money on. Most people actually have no idea what they really spend their money on when they go to write their first budget. There are a couple of things you can do to help with this.

First, pull all your bank statements or look at your online banking for the past 6 months. I’d recommend printing it all out and going through it with different colored highlighters. Have one color highlighter for groceries, one for eating out, one for entertainment, etc. Then total them up for each month. This will give you a basis for how much you spend in different categories and what categories you actually need.

When I wrote my first budget I just tracked my spending for an average month before actually writing it out. I wrote down everything I spent money on for an entire month (you’re going to be doing this for the rest of your life anyway so you might as well get started now). This method enabled me to separate my spending into categories as the month progressed, so I had a very good idea of what my budget needed to include when I was done.

Make sure you consider expenses that don’t happen every month or period, like birthdays, holidays, and special events. You’ll need to adjust your budget accordingly each period to include these things.

Setting Budget Categories

So budget categories are based on what types of expenses you have. Now we’re going to actually write out your budget and set up your budget categories.

Start by writing the income you figured out earlier at the top. Write all streams of income and total them up. This will be the income section. Here’s an example of how this should look:

The numbers in this example are all totally made up, but they give you an idea of how things should go.

Next, we’re going to add all the bill categories to the budget. Write these expenses out in order from most necessary to least. So you have to pay your rent more than you need to pay for Netflix, so put rent higher on the list than Netflix. This will make it easier to cut things if necessary.

Finally, write down the rest of your expense categories. Again, do this in order from most necessary to least necessary. These categories will be the trickiest because you’ll have to guess how much you’ll need in each one.

You need to do a new budget every month or paycheck (whatever period you chose). There will be different things you’ll need to account for at different times. One month you might have 3 birthdays to buy gifts for and the next you won’t have any. Increase your gas category if you will be driving somewhere out of the ordinary. Adjust your budget based on what’s going on in your life.

At the very end of your budget, anything you have left after covering all your bills and expenses should go toward reaching your financial goals. In this example, I put it towards an extra debt payment. I subtracted all the expenses from the total income to get the total amount of income left.

There you go! You’ve written your first budget!

Not as scary as you thought? It definitely can be overwhelming when you think about sitting down to look at your finances for the first time. Once you get a feel for your budget categories, you can start adjusting them to help you put more towards your goals (like paying off debt!).

Budgeting Tips

Don’t try to cut down on spending in any of your budget categories the first month. Your first month of budgeting is not going to go well. It takes time to get used to new habits and build new skills. Budgeting is a new skill and controlling your spending is a new habit.

The first few months of budgeting are going to be very frustrating. You aren’t going to stick to your budget 100% and you’re going to get your categories wrong at the beginning. This is okay!

If everyone was naturally good at budgeting then everyone would be great at handling their money from the start. It will take time to get good at it. Don’t give up! I promise getting good at budgeting is worth it when you realize you finally have full control over your money and where it goes.

What if my expenses are higher than my income?

Then you need to cut some expenses or increase your income.

I know that’s easier said than done, but if this is your situation you are going farther into debt every single month. If your budget is full of subscription services like Netflix and Fab, Fit, Fun, you’re going to have to cut those things out. You’ll have to reduce your “fun” spending as much as you can until you can get your finances cleaned up.

If your budget isn’t full of a lot of fun stuff, your situation is a little trickier. If your basic expenses are more than your income, you need to find a way to increase your income. Take a second job, start a side hustle, sell some stuff. You need your income to be at least as much as your basic expenses.

Tracking Spending

Now that you have your budget written out, take steps to stick to it. Tracking your spending is a crucial part of budgeting. It lets you keep track of what you have left in each category and know what you’re really spending your money on.

The way I track my spending is by using a monthly planner — I use the Erin Condren Deluxe Monthly Planner . I track my spending on each day. Mine is color-coded based on the spending category, but you definitely don’t have to get that complicated about it. Just write down every dollar you spend, where you spent it, and what it was for.

You need this record of where your money is going to continually evaluate your expenses and determine where you continually go over budget. I have also found that knowing I have to track every dollar I spend makes me think more about what I’m buying when I’m shopping. If I’m not going to be happy I have to write it down I’m less likely to buy it.

I also use tracking pages in my budget planner so I know how much money I have left in my main spending categories. For each paycheck, I write down the total budgeted amount for the section. Every time I make a purchase from that category I write it down and subtract the amount I spent from the total amount I had allowed. This enables me to know at any point how much I have left in those categories.

How do I live on a tight budget?

This is the million-dollar question, isn’t it? Sticking to a budget can be very hard. Even people that have been doing a budget for years mess up sometimes. The beauty of a budget is that it doesn’t have to go perfectly every single time. Just having a plan and prioritizing when you send your money can drastically change your financial situation.

If you had more expenses than income or had to cut some categories from your budget in order to reach your goals faster, it can be very hard to stick to your budget. It takes a lot of self-control. Having people around you that will support you and enable you to stick to your budget (instead of enabling you to ignore the budget and blindly spend) can go a long way.

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How to Make a Budget: Your Step-by-Step Guide

12 Min Read | Jan 4, 2024

Making a budget might seem overwhelming at first, but hear this: You can do it. How? By breaking down the process a bit. Because no one eats an elephant by swallowing it whole. (You go one bite at a time.) And no one leaps into budgeting like a pro. (You take it one step at a time.)

So, here we go—bite by bite, step by step. Here’s how to make a budget in five steps.

• List Your Income
• List Your Expenses
• Subtract Expenses From Income
• Track Your Transactions
• Make a New Budget Before the Month Begins

What Is a Budget?

Real quick though, let’s define the word  budget . A budget is just a plan. It’s not a restriction on spending—it’s a plan for what you’ll do with your money. It’s a plan   for what’s coming in and what’s going out.

When you learn how to make a budget—and do it every month—you’re giving your money purpose. You’re taking control. Goodbye, money anxiety. Hello, money goals.

Keep reading to see how to make it happen so you can make a budget that works for you.

How to Make a Budget in 5 Steps

No matter how you feel about budgeting right now, no matter what money goals you have, and no matter your income—you can make (and keep!) a budget in just five steps.

But first, decide if you’re making a budget on paper, with a spreadsheet, or in an app. (I know a  great app called EveryDollar . It’s what I use to budget—and it’s the best. Just saying.) Either way, it’s totally okay to start by writing out everything on a sheet of paper.

Pro tip:  Before you dive into the steps, open up your online bank account or grab your bank statements. That will give you the info you need as you start filling out numbers in your budget.

Step 1: List Your Income

Income  is any money you plan to get during that month—that means your normal paychecks and any  extra money coming your way  through a side hustle, garage sale, freelance work or anything like that.

You work weekends as a barista or babysitter? That’s income, and it goes in your budget. 

Create separate income budget lines for every paycheck you (and your spouse) get, plus anything extra coming in. (Note: You’re working with  net income  here, meaning what you bring in after taxes or anything else that’s taken out of your paycheck.) Here’s an example:

His Paycheck 1: $1,500 Her Paycheck 1: $1,500 His Paycheck 2: $1,500 Her Paycheck 2: $1,500 Side Hustle: $500

Total Income: $6,500

If you’ve got an  irregular income , take a look at what you’ve made the last few months and list the  lowest amount  as this month’s planned income budget line. You can adjust later in the month if you make more and add that extra money to your money goal or another budget line.

Step 2: List Your Expenses

Now that you’ve planned for the money coming in, you can plan for the money going out. It’s time to list your expenses! (Yep, this is when that bank account or statement gets super helpful.)

Pro tip:  When you’re making a budget, before you put in all the things you’ll pay for this month, set aside money for giving. I believe in putting 10% of your income here—it’s a great way to start your budget with a  spirit of generosity ! Next, budget for your savings goals, like  an emergency fund  (depending on your Baby Step, which I'll talk about more in a minute). You've got to pay yourself first before you pay everyone else!

What’s next?

Cover your Four Walls.  That’s food, utilities, shelter and transportation . Make a budget category for each of these and create budget lines underneath for your specific expenses.

Start budgeting with EveryDollar today!

Think of a budget category as a folder and the lines as the files inside it. Or the category is like a playlist, and the lines are like the songs. Or . . . okay, you get it.

Here’s what it might look like for you (but with your numbers, of course!):

Budget Category: Food Groceries: $700

Budget Category: Utilities Electricity: $130 Water: $60 Natural Gas: $40

Budget Category: Shelter/Housing Mortgage: $1,450 HOA Fees: $50

Budget Category: Transportation Gasoline: $180

Some of these are called  fixed expenses —aka the expenses that stay the same every month, like your rent or mortgage.

Other expenses change up, like groceries or gasoline. By the way, that grocery budget line is super hard to guess at first, so just start with a really good estimate based on your past spending. You’ll learn better what you actually need here in the months ahead.

Next, list all other monthly expenses.  Start with the essentials: I’m talking about insurance,  debt , childcare, etc. Then work in a miscellaneous line and any nonessentials like personal spending, fun money and entertainment.

Then use your online bank account or those bank statements to estimate what you plan to spend for everything.

Here’s a quick callout. If you’re working to save money,  get out of debt , or hit some other money goal, you’ll get there way quicker if you cut back on the nonessential spending.

If you don’t know what goal to focus on right now, check out the  7 Baby Steps . This plan breaks the most important money goals into easy-to-understand, actionable steps!

Make new budget categories for your new budget lines.  Of course, if you spend money eating out, you can just add a line called Restaurants under your food category—as long as you remember groceries are a necessity , but drive-thrus or fancy three-course meals out  are not .  

Step 3: Subtract Expenses From Income

Math time! (It won’t be too bad. But it is totally necessary. Let’s do this.)

Subtract all your expenses from your income. This number should equal zero, meaning you just made a zero-based budget.

This is key: A  zero-based budget  doesn’t mean you let your bank account reach zero. (Leave a little buffer in there of about $100–300.) It also doesn’t mean you blow all your money.

Zero-based budgeting just means you  give every dollar a job to do : spending, giving,  saving or paying off debt . It’s all accounted for and given a purpose. It’s the reason I love this method.

You work hard for your money, right? Well, it should work hard for you! Every. Single. Dollar.

Okay, though, what do you do if you subtract your expenses from your income—and you’ve got money left over?  Don’t leave it there.  You’ll end up mindlessly spending it on  coffees , convenience store candy, and those one-click deals of the day. Get those dollars to work by putting any “extra” money toward your current  money goal .

What if you end up with a negative number? It’ll be okay. You just need to  cut expenses  until your income minus your expenses equals zero. (Hint: Start with those eating-out and entertainment budget lines. If restaurants are your love language, this will hit hard, but you can’t spend more than you make. You’ve got this!)

If you’re still struggling to make ends meet, don’t forget the power of the  side hustle  or overtime. Just remember not to increase your spending when you increase your income. Your extra cash needs to cover your budgeted expenses.

Is the math stressing you out a little? Listen, let  EveryDollar  do that for you. Our free budgeting app is made for this zero-based budgeting stuff, and you won’t have to keep running back to the calculator to get it right.

Okay, so that’s it for  making  a budget. The next two steps are all about  sticking with it .

Step 4: Track Your Transactions (All Month Long)

Ready for one of the biggest secrets for how to budget—and do it really, really well? Good, because I don’t want to keep it a secret. Here it is: Track. Your. Transactions.

Every single one.

Putting the plan on paper, in your spreadsheet, or in your app is just a bunch of good intentions without this step. It’s like writing down a goal to run a marathon, making a training plan, lacing up your shoes . . . and flopping on the couch with a bag of donuts.

What am I even talking about?  Tracking your transactions  means you account for  everything  that happens with your money  all month long .

When you fill up the  gas tank , subtract that expense from transportation. When you pay the rent, subtract that expense from housing. When you buy a coffee on the way to the office, subtract that expense from your personal spending (or whatever budget line you made for the perk that helps you work).

Track your transactions regularly. That might be once a week. Or at the end of each day. Or it might mean you log a purchase before you leave the grocery store parking lot. Whatever works for you and gets every expense tracked.

As you’re tracking, make adjustments as you need to. Yes, really! This is your budget. You make it work for you. If the  electricity bill  comes in higher than you thought, just tweak another budget line to make up for it. If the water bill comes in lower, then celebrate and move that money over to your current money goal—or add it to a budget line that went over.

I can’t say enough good things about tracking your transactions. But to sum up, I love this budgeting step because it’s how you:

• Stay accountable  to your budget, yourself and your money goals. (Also your spouse, if you’re married! And remember EveryDollar? You two can share an account so you’re budgeting as a team!) No secrets. No pretending a purchase didn’t happen.
• Keep from overspending,  because as you enter expenses, you see what you have left in every budget line! Instantly, you’ll know what’s left so you don’t overspend.
• Stay on top of the budget.  Your budget is not a set-it-and-forget-it project. It’s not a slow cooker. When you track transactions, you get in your budget all the time, and you can make adjustments so you know where your money is going—all the time.
• Learn and adjust your spending habits  so you can get back on track with your goals and finally make them happen. One monthly budget at a time.

Step 5: Make a New Budget Before the Month Begins

While your budget shouldn’t change too much from month to month, the fact is, no two months are exactly the same. That’s why you create a new  budget every single month —before the month begins. Then you can stare down certain expenses and say, “You will  not  be a surprise to my bank account, thank you very much.”

When you’re ready to start your next budget, just copy over this month’s budget to the next, and then make changes for anything new that’s coming.

Here are some examples of month-specific expenses to prep for:

• Celebrations like birthdays and anniversaries:  Never forget those.
• Holidays:  Do you need decor, gifts or a feast at the ready?
• Seasonal purchases:  Don’t forget to budget for  back-to-school season , fall coffee-flavor releases, and your spring kickball league.
• Semiannual expenses:  Do you pay your auto insurance twice a year? Do you need an oil change next month?
• Annual expenses:  Is it time for your yearly eye exam? Do you need to  budget for your pet to get his shots at the vet?

Here’s one way to handle getting these changing expenses into your budget:

• Create a budget category called something like Month-Specific Stuff or Alternating Expenses or Discretionary (if you like huge words).
• Then add whatever lines you need for  that month  and delete the ones from  last month  you no longer need.

Where does the money come from? You can cut back spending somewhere else and move that money over to this category. Taking $5–20 from a couple budget lines really adds up. Literally. Or if you can, crank up your income for the month. (Time for an extra freelance gig!)

Hey, if this part sounds complicated or clunky, that’s because it can be at the beginning. It takes people about three months to really get the hang of budgeting, so give yourself some grace and keep working on it! The benefits of budgeting will far outweigh the effort.

Why Making a Budget Is So Important

What are the benefits? Why is it worth it? Because when you budget, you’re telling your money where to go—so you don’t have to wonder where it went. You’re showing your money who’s in charge. (You.)

Budgeting is how you make any money goals happen—it’s how you make progress with your finances! It puts you in control. It gives you permission to spend your money  your  way.

I could go on and on and on because I honestly believe making a budget—and living that budgeting life—is one of the most important decisions you’ll make with your finances.

How to Make a Budget With Confidence

That’s it! That’s how to make a budget—and why you should. So, now it’s time to do it! It’s time to get confident with your money.

But what about being confident with budgeting? Hey, let  EveryDollar  help! This free tool makes budgeting easier, which is always a win. Download EveryDollar. Budget every month. You got this!

Save more. Spend better. Budget confidently.

Get EveryDollar: the free app that makes creating—and keeping—a budget simple . (Yes, please.)

Did you find this article helpful? Share it!

About the author

Rachel Cruze

Rachel Cruze is a #1 New York Times bestselling author, financial expert, and host of The Rachel Cruze Show. Rachel writes and speaks on personal finances, budgeting, investing and money trends. As a co-host of The Ramsey Show, America’s second-largest talk radio show, Rachel reaches millions of weekly listeners with her personal finance advice. She has appeared on Good Morning America and Fox News and has been featured in publications such as Time, Real Simple and Women’s Health magazines. Through her shows, books, syndicated columns and speaking events, Rachel shares fun, practical ways to take control of your money and create a life you love. Learn More.

How to Create a Zero-Based Budget

Zero-based budgeting is a method of budgeting where your income minus expenses equals zero. Follow these steps to make a zero-based budget each month.

How to Set Financial Goals: 6 Steps

Want to make more progress with your money? Setting the right financial goals is the first step!

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Creating Personal Budget Essay Samples

Type of paper: Essay

Topic: Money , Budget , Goals , Belief , Banking , Challenges , Motivation , Taxes

Published: 03/20/2020

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Personal Finance: Creating a Budget

I thought that it would be a simple and straightforward thing to prepare my personal budget. While it was easy to register the monthly income and estimating other categories of income, computing the expenses was the most challenging thing (Freeman and Media, 2014). I had to review my budget several times before I was satisfied with the final budget. After entering the monthly income from my monthly salary and other expected incomes from parents and relatives, I started thinking of the items that involve fixed costs for instance, house rent, education loan, car insurance and the rest. Expenses of fixed cost items are relatively easy to identify because they constitute a monthly routine. I ended with estimating the monthly expense on non-fixed items such as expenses on personal expenses such as drinking with friends, movies, saving for vacation and recreation expenses. Before entering the expenses for non-essential items, I had set a goal of saving $250 for emergency purposes. Allocating for emergency expenses helps in catering for items that have not been considered in the budget, like unexpected medical bills (Kossman, 2013). I also considered the miscellaneous expenses such as charities, cost of magazines and newspaper, and gifts to friend and families. These items are not constant for every month and can sometimes constitute a significant percentage of the monthly expenses (“Budget for Miscellaneous” 2014). While I tried to consider every item of spending, it was challenging to become overly thorough with the finer details of my spending, especially on miscellaneous items. I tried to accommodate every spending item within the expenses categories. When I changed my basic income to 10,000 per month, the tax expense increased considerably. I was however able to vary my spending by allocating for more money for personal entertainment expenses for instance recreational expenses and savings for vacation. In addition, I allocated more for other non-essential items such as cloths, and increased the target for monthly saving.

Challenges of Maintaining a Personal Budget

One of the biggest challenges in maintaining the budgets is being unrealistic with the spending items especially on items that constitute variable expenses. Being realistic means making the correct estimates for spending items, which makes it possible to attain the expected goals. Being unrealistic leads to an inefficient budget since the spending can be more than the income. For instance, while planning for the miscellaneous expenses, I had not factored in the car parking fees which accounts for $120 per month. Excluding such expenses may lead to unrealistic budget estimates (“Budget for Miscellaneous” 2014). Another challenge is maintaining a positive attitude. This means that while it is possible to set goals in the budget, focusing on those goals is sometimes difficult. In order to avoid overspending, there are items of expenses that can be reduced without affecting the allocation for the essential items. To maintain a reduced spending on non-essential items is sometimes challenging. Another challenge in maintaining a budget is lack of motivation to follow the budget. The expected savings per month has a significant influence on our motivation to maintain spending as outlined in the budgets (Vohwinkle, n.d). Barnes (2014) indicates that, one of the reasons why people stop using personal budgets to guide their expenses is that multiple expenses that occur are not allocated in the budgets. In conclusion, a good budget can seem to constrict on the needs of a person. However, it can be an effective guide when approached with an open mind and positive attitude. The motivation to maintaining a budget is the realization of the budgeting goals, which are most often, anchored on the ability of the budget to reflect the true spending patterns of an individual. A good budget can lead to lowering debt and increasing the amount of savings, which builds into a solid financial future. Being realistic on the amount to allocate for miscellaneous expenses and maintaining self-discipline in the spending behaviors are key to having a successful budget. Sticking to the goal of the expected amount of saving per month is another motivator to maintaining a personal budget.

“Budget for Miscellaneous” (2014). CBS News. Retrieved December 8, 2014 http://www.cbn.com/finance/crownmiscellaneous.aspx Barnes, R. (2014). Top 5 Budgeting Questions Answered. Investopedia.com. retrieved December 8, 2014 http://www.investopedia.com/articles/pf/07/budget-qs.asp Freeman, E. and Media, D. (2014). Steps top creating a personal budget. Budgetting.thenest.com. Retrieved December 7, 2014 http://budgeting.thenest.com/steps-creating-personal-budget-3431.html Kossman, S. (2013). 8 Steps to Creating a Personal Budget. Daily finance. Retrieved December 8, 2014 http://www.dailyfinance.com/2013/10/18/8-steps-create-personal-budget-debt-family-money/ Vohwinkle, J. (n.d.). 3 traits for budgeting success. Aboutmoney.com. retrieved December 7, 2014 http://financialplan.about.com/od/budgetingyourmoney/qt/BudgetTraits.htm

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• Introduction
• Calculate your net income
• Track your spending
• Set realistic goals
• Make a plan
• Adjust your spending to stay on budget
• Review your budget regularly

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Creating a budget

If you’re looking to create a personal budget, start with these six steps

Read, 4 minutes

Most people need some way of seeing where their money is going each month. A budget can help you feel more in control of your finances and make it easier to save money for your goals. The trick is to figure out a way to track your finances that works for you. The following steps can help you create a budget.

Step 1: Calculate your net income

The foundation of an effective budget is your net income. That’s your take-home pay—total wages or salary minus deductions for taxes and employer-provided programs such as retirement plans and health insurance. Focusing on your total salary instead of net income could lead to overspending because you’ll think you have more available money than you do. If you’re a freelancer, gig worker, contractor or are self-employed, make sure to keep detailed notes of your contracts and pay in order to help manage irregular income .

Step 2: Track your spending

Once you know how much money you have coming in, the next step is to figure out where it’s going. Tracking and categorizing your expenses can help you determine what you are spending the most money on and where it might be easiest to save.

Begin by listing your fixed expenses. These are regular monthly bills such as rent or mortgage, utilities and car payments. Next list your variable expenses—those that may change from month to month, such as groceries, gas and entertainment. This is an area where you might find opportunities to cut back. Credit card and bank statements are a good place to start since they often itemize or categorize your monthly expenditures.

Record your daily spending with anything that’s handy—a pen and paper, an app or your smartphone, or budgeting spreadsheets or templates found online.

Bank of America clients can access the Spending & Budgeting tool in Online and Mobile Banking to automatically categorize transactions for easier budgeting.

Step 3: Set realistic goals

Before you start sifting through the information you’ve tracked, make a list of your short- and long-term financial goals. Short-term goals should take around one to three years to achieve and might include things like setting up an emergency fund or paying down credit card debt . Long-term goals, such as saving for retirement or your child’s education, may take decades to reach. Remember, your goals don’t have to be set in stone, but identifying them can help motivate you to stick to your budget. For example, it may be easier to cut spending if you know you’re saving for a vacation.

Bank of America Life Plan helps you create a plan that’s tailored to your goals.

Step 4: Make a plan

This is where everything comes together: What you’re actually spending vs. what you want to spend. Use the variable and fixed expenses you compiled to get a sense of what you’ll spend in the coming months. Then compare that to your net income and priorities. Consider setting specific—and realistic—spending limits for each category of expenses.

You might choose to break down your expenses even further, between things you need to have and things you want to have. For instance, if you drive to work every day, gasoline counts as a need. A monthly music subscription, however, may count as a want. This difference becomes important when you’re looking for ways to redirect money to your financial goals.

What is the 50/30/20 rule?

The 50/30/20 rule is a budgeting technique that divides your take-home income into three categories by percentages. It’s a simple way to track your spending. Here’s the breakdown: Needs 50% Rent or mortgage Car payment Utilities Groceries Wants 30% Streaming services Shopping Vacations Savings or Debt 20% Emergency fund Retirement Child’s education Credit card payments

Step 5: Adjust your spending to stay on budget

Now that you’ve documented your income and spending, you can make any necessary adjustments so that you don’t overspend and have money to put toward your goals. Look toward your “wants” as the first area for cuts. Can you skip movie night in favor of a movie at home? If you’ve already adjusted your spending on wants, take a closer look at your spending on monthly payments. On close inspection a “need” may just be a “hard to part with.”

If the numbers still aren’t adding up, look at adjusting your fixed expenses. Could you, for instance, save more by shopping around for a better rate on auto or homeowners insurance? Such decisions come with big trade-offs, so make sure you carefully weigh your options.

Remember, even small savings can add up to a lot of money. You might be surprised at how much extra money you accumulate by making one minor adjustment at a time.

Step 6: Review your budget regularly

Once your budget is set, it’s important to review it and your spending on a regular basis to be sure you are staying on track. Few elements of your budget are set in stone: You may get a raise, your expenses may change or you may reach a goal and want to plan for a new one. Whatever the reason, get into the habit of regularly checking in with your budget following the steps above.

The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America Corporation and/or its affiliates assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment management. ©2024 Bank of America Corporation.

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Budgeting 101: How to Budget Money

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If I have take-home pay of, say, $3,000 a month, how can I pay for housing, food, insurance, health care, debt repayment and fun without running out of money? That’s a lot to cover with a limited amount, and this is a zero-sum game.

The answer is to make a budget.

What is a budget? A budget is a plan for every dollar you have. It’s not magic, but it represents more financial freedom and a life with much less stress. Here’s how to set up and then manage your budget.

Get a custom financial plan and unlimited access to a Certified Financial Planner™

NerdWallet Advisory LLC

How to budget money

Calculate your monthly income, pick a budgeting method and monitor your progress.

Try the 50/30/20 rule as a simple budgeting framework.

Allow up to 50% of your income for needs, including debt minimums.

Leave 30% of your income for wants.

Commit 20% of your income to savings and debt repayment beyond minimums.

Track and manage your budget through regular check-ins.

Understand the budgeting process

Figure out your after-tax income : If you get a regular paycheck, the amount you receive is probably it, but if you have automatic deductions for a 401(k), savings, and health and life insurance, add those back in to give yourself a true picture of your savings and expenditures. If you have other types of income — perhaps you make money from side gigs — subtract anything that reduces it, such as taxes and business expenses.

Choose a budgeting plan: Any budget must cover all of your needs, some of your wants and — this is key — savings for emergencies and the future. Budgeting plan examples include the envelope system and the zero-based budget.

Track your progress: Record your spending or use online budgeting and savings tools .

Automate your savings: Automate as much as possible so the money you’ve allocated for a specific purpose gets there with minimal effort on your part. An accountability partner or online support group can help, so that you're held accountable for choices that blow the budget.

Practice budget management: Your income, expenses and priorities will change over time, so actively manage your budget by revisiting it regularly, perhaps once a quarter. If you're struggling to stick with your plan, try these budgeting tips .

Start by determining your take-home (net) income, then take a pulse on your current spending. Finally, apply the 50/30/20 budget principles : 50% toward needs, 30% toward wants and 20% toward savings and debt repayment.

The key to keeping a budget is to track your spending on a regular basis so you can get an accurate picture of where your money is going and where you’d like it to go instead. Here’s how to get started: 1. Check your account statements. 2. Categorize your expenses. 3. Keep your tracking consistent. 4. Explore other options. 5. Identify room for change. Free online spreadsheets and templates can make budgeting easier.

Start with a financial self-assessment. Once you know where you stand and what you hope to accomplish, pick a budgeting system that works for you. We recommend the 50/30/20 system, which splits your income across three major categories: 50% goes to necessities, 30% to wants and 20% to savings and debt repayment.

Start by determining your take-home (net) income, then take a pulse on your current spending. Finally, apply the 50/30/20

budget principles

: 50% toward needs, 30% toward wants and 20% toward savings and debt repayment.

The key to keeping a budget is to

track your spending

on a regular basis so you can get an accurate picture of where your money is going and where you’d like it to go instead. Here’s how to get started: 1. Check your account statements. 2. Categorize your expenses. 3. Keep your tracking consistent. 4. Explore other options. 5. Identify room for change. Free

online spreadsheets and templates

can make budgeting easier.

Start with a financial self-assessment. Once you know where you stand and what you hope to accomplish, pick a

budgeting system

that works for you. We recommend the 50/30/20 system, which splits your income across three major categories: 50% goes to necessities, 30% to wants and 20% to savings and debt repayment.

Try a simple budgeting plan

We recommend the popular 50/30/20 budget to maximize your money . In it, you spend roughly 50% of your after-tax dollars on necessities, including debt minimum payments. No more than 30% goes to wants, and at least 20% goes to savings and additional debt payments beyond minimums.

We like the simplicity of this plan. Over the long term, someone who follows these guidelines will have manageable debt, room to indulge occasionally, and savings to pay irregular or unexpected expenses and retire comfortably.

The 50/30/20 budget

Find out how this budgeting approach applies to your money.

Your 50/30/20 numbers:

Necessities

Savings and debt repayment

Do you know your “want” categories?

Become a NerdWallet member to track your monthly spending trends, including how much you're allocating to needs and wants.

Allow up to 50% of your income for needs

Your needs — about 50% of your after-tax income — should include:

Basic utilities.

Transportation.

Minimum loan and credit card payments. Anything beyond the minimum goes into the savings and debt repayment category.

Child care or other expenses you need so you can work.

If your absolute essentials overshoot the 50% mark, you may need to dip into the “wants” portion of your budget for a while. It’s not the end of the world, but you'll have to adjust your spending.

Even if your necessities fall under the 50% cap, revisiting these fixed expenses occasionally is smart. You may find a better cell phone plan , an opportunity to refinance your mortgage or an opportunity for less expensive car insurance . That leaves you more to work with elsewhere.

Leave 30% of your income for wants

Separating wants from needs can be difficult. In general, though, needs are essential for you to live and work. Typical wants include dinners out, gifts, travel and entertainment.

It’s not always easy to decide. Are restorative spa visits (including tips for a massage ) a want or a need? How about organic groceries? Decisions vary from person to person.

If you're eager to get out of debt as fast as you can, you may decide your wants can wait until you have some savings or your debts are under control. But your budget shouldn't be so austere that you can never buy anything just for fun.

Every budget needs wiggle room — maybe you forgot about an expense or one was bigger than you anticipated — and some money to spend as you wish. If there's no money for fun, you'll be less likely to stick with your budget.

Commit 20% of your income to savings and debt paydown

Use 20% of your after-tax income to put something away for the unexpected, save for the future and pay off debt balances (paying more than minimums). Make sure you think of the bigger financial picture; that may mean two-stepping between savings and debt repayment to accomplish your most pressing goals.

Many experts recommend you try to build up several months of bare-bones living expenses. We suggest you start with an emergency fund of at least $500 — enough to cover small emergencies and repairs — and build from there.

You can’t get out of debt without a way to avoid more debt every time something unexpected happens. And you’ll sleep better knowing you have a financial cushion.

Get the easy money first. For most people, that means tax-advantaged accounts such as a 401(k). If your employer offers a match, contribute at least enough to grab the maximum. It's free money.

Why do we make capturing an employer match a higher priority than debts? Because you won’t get another chance this big at free money, tax breaks and compound interest. Ultimately, you have a better shot at building wealth by getting in the habit of regular long-term savings.

You don’t get a second chance at capturing the power of compound interest . Every $1,000 you don’t put away when you’re in your 20s could be $20,000 less you have at retirement .

Once you’ve snagged a match on a 401(k), if available, go after the toxic debt in your life: high-interest credit card debt, personal and payday loans, title loans and rent-to-own payments. All carry interest rates so high that you end up repaying two or three times what you borrowed.

If either of the following situations applies to you, investigate options for debt relief , which can include bankruptcy or debt management plans :

You can't repay your unsecured debt — credit cards, medical bills, personal loans — within five years, even with drastic spending cuts.

Your total unsecured debt equals half or more of your gross income.

Once you’ve knocked off any toxic debt, the next task is to get yourself on track for retirement. Aim to save 15% of your gross income; that includes your company match, if there is one.

If you’re young, consider funding a Roth individual retirement account after you capture the company match. Once you hit the contribution limit on the IRA, return to your 401(k) and maximize your contribution there.

Regular contributions can help you build up three to six months' worth of essential living expenses — not your full budget, just the must-pay basics. You shouldn’t expect steady progress because emergencies happen, and that's when you should pull money from this fund. Just focus on replacing what you use and building higher over time.

These are payments beyond the minimum required to pay off your remaining debt .

If you’ve already paid off your most toxic debt, what’s left is probably lower-rate, often tax-deductible debt (such as your mortgage). Tackle these when the more-basic goals listed above are covered.

Any wiggle room you have here comes from the money available for wants or from saving on your necessities, not your emergency fund and retirement savings.

Congratulations! You’re in a great position — a really great position — if you’ve built an emergency fund, paid off toxic debt and are socking away 15% toward a retirement nest egg. You’ve built a habit of saving that gives you immense financial flexibility. Don’t give up now.

Consider saving for irregular expenses that aren’t emergencies, such as a new roof or your next car. Those expenses will come no matter what, and it’s better to save for them than borrow.

WATCH TO LEARN MORE ABOUT BUDGETING

» LEARN: Tips for Canadians on how to budget

on Capitalize's website

Get a custom financial plan and unlimited access to a Certified Financial Planner™. Unbiased, expert financial advice for a low price.

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How to create a budget in 5 steps

Creating a budget is a great way to track spending and get your finances in order. here's how you can accomplish this important task and achieve your financial goals..

Creating a budget is a great way to track where your money goes each month and an important step to getting your finances in order. A budget can make it easier for you to achieve financial milestones, such as building an emergency fund or saving for a down payment on a home.

While the task may seem daunting, it's not that difficult to create a budget. Plus once you have one, the bulk of the work is done and you can make minor tweaks as your spending habits or income change. There are many websites and budgeting apps that you can use to get started, or you can create your own spreadsheet.

Below, CNBC Select reviews how to create a budget using a spreadsheet, but many of the steps are the same as other budgeting methods. Feel free to get creative with it — you can download templates online through Google Sheets, Microsoft Excel and other sites or start from scratch.

Here's how to create a budget in five steps.

How to create a budget

• Calculate your net income
• List monthly expenses
• Label fixed and variable expenses
• Determine average monthly costs for each expense
• Make adjustments

1. Calculate your net income

The first step is to find out how much money you make each month. You'll want to calculate your net income, which is the amount of money you earn less taxes.

If you receive a regular paycheck through your employer, regardless if you're part-time or full-time, the amount listed is likely your net income.

Keep in mind that if you're enrolled in a health insurance plan, flexible spending account (FSA) and/or a retirement account through your employer, the money is often automatically withdrawn from your paycheck. You'll want to subtract those deductions to make sure you have a clear picture of your take-home pay.

If you freelance, are self employed or simply don't receive a regular paycheck, you'll need to subtract taxes from your income amount. The self-employment tax rate is 15.3% , according to the IRS. You can use this TaxAct calculator to estimate how much taxes you're required to pay in a year. Then you can divide by 12 to get a monthly estimate.

2. List monthly expenses

Next, you'll want to put together a list of your monthly expenses .

Here are some common expenses:

• Rent or mortgage payments
• Loan payments (such as student, auto and personal)
• Insurance (such as health, home and auto)
• Utilities (such as electricity, water and gas)
• Phone, internet, cable and monthly streaming subscriptions
• Transportation (such as, gas , train tickets and bus fares)
• Household goods
• Gym memberships
• Miscellaneous (such as, gifts, entertainment and apparel)

It's also good to include details on how much you're saving each month, whether that's into traditional or  high-yield savings accounts  or a personal retirement account, such as a Roth IRA.

3. Label fixed and variable expenses

Once you've compiled a list of your monthly expenses, label whether they're fixed or variable. Fixed expenses are bills you can't avoid: rent, utilities, transportation, insurance, food and debt repayment. Variable expenses tend to be more flexible — your gym membership, for instance, or how much you spend on dining out.

If money was tight, you could always drop your gym membership and curtail your dining out spending, but you are likely always going to have to pay rent or your mortgage. 

4. Determine average monthly cost for each expense

After you separate fixed and variable expenses, list how much you spend on each expense per month. You can look up your spending on bank and credit card statements.

Fixed expenses are easier to list on your budget than variable expenses since the cost is generally the same month-to-month. For example, debt repayment on a mortgage or auto loan will cost the same each month. But fixed utilities, such as electric and gas, and variable costs, such as dining and household goods, often fluctuate month-to-month, so you'll need to do some math to find the average.

For these categories and any where you spending changes from month-to-month, determine the average monthly cost by looking at three months worth of spending. To calculate the average amount you spend on groceries, for example, add up all of your grocery spending during the past three months and divide by three.

If you find that the average you spend on groceries each month is $433, you may want to round up and set the spending limit to $450.

5. Make adjustments

The last step in creating a budget is to compare your net income to your monthly expenses. If you notice that your expenses are higher than your income, you'll need to make some adjustments.

For instance, let's say your expenses cost $300 more than your monthly net pay. You should review your variable expenses to find ways to cut costs in the amount of $300. This may include reevaluating how much you spend on groceries, household goods, streaming subscriptions and other flexible costs.

It's a good idea to reduce these costs and regularly make adjustments to the amount of money you spend so you can avoid debt.

On the other hand, if you have more income leftover after listing your expenses, you can increase certain areas of your budget. Ideally, you'd use this extra money to increase your savings, especially if you don't have an emergency fund. But you could also use the money on non-essential things like dining out or traveling.

If you don't yet have a high-yield savings account  consider opening one, such as Marcus by Goldman Sachs High Yield Online Savings , and earning 16 times  more interest than traditional accounts.

After you finish creating a budget, the next step is to stick to it. You can hold yourself accountable in a variety of ways. For starters, you can set reminders with your credit card and bank accounts when you reach a preset spending amount. You should also try tracking all of your expenses into your spreadsheet or budgeting app right after you make a purchase. And if you share expenses with someone else, make sure you're both on the same page with the budget and keep each other on track.

• Best car insurance companies in Illinois based on price, customer service and coverage Liz Knueven
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Jump to content

Making a Budget

• What To Know

What is a budget?

A budget is a plan you write down to decide how you will spend your money each month.

A budget helps you make sure you will have enough money every month. Without a budget, you might run out of money before your next paycheck.

A budget shows you:

• how much money you make
• how you spend your money

Why do I want a budget?

A budget helps you decide:

• what you must spend your money on
• if you can spend less money on some things and more money on other things

For example, your budget might show that you spend $100 on clothes every month. You might decide you can spend $50 on clothes. You can use the rest of the money to pay bills or to save for something else.

For Example

Why should I try to save money?

You might need money for an emergency. You also might need to buy something more expensive, like a car. Saving money might help you buy a car, put a security deposit on an apartment, or pay for something else expensive.

How do I start a budget?

Start a budget by gathering your bills and pay stubs. Think about how you spend money, besides paying your bills. For example, do you buy a cup of coffee every day? After a month, that coffee money could add up to an expense you might write down.

When you have your bills and pay stubs:

• write down your expenses. An expense is money you spend
• write down how much money you make. This is called income
• subtract your expenses from how much money you make

If the number is less than zero, you are spending more money than you make. Look for things in your budget you can change.  Maybe something you do not need, or a way to spend less.

Use this Budget Worksheet to help you.

What if I don’t get paid every month? 

Some people do not get paid every month. If you expect things to be like they were last year, do this:

• add all the money you earned last year
• divide that number by 12. This is about how much money you will have for each month

Last year my paychecks added up to $30,000. $30,000 ÷ 12 = $2,500 I had about $2,500 each month.

How can I use my budget?

A budget is something you use every month. A written budget will help you:

• see where you spend money
• see where you can save
• make a plan for how to spend and save your money

Your budget can help you save money for the future. You can make savings one of your expenses. You might find ways to spend less money. Then you can put money into savings every month – maybe into a bank or credit union. 

Why should I save money?

It can be hard to save money. It is very hard when your expenses go up and your income does not. Here are some reasons to try to save money even when it is not easy.

• Emergencies – Saving small amounts of money now might help you later. Everyone has expenses they do not expect.
• Expensive things – Sometimes, we have to pay for expensive things – like a car, a trip, or a security deposit on an apartment. You will have more choices if you have money to pay for those expensive things.
• Your goals – You might want to pay for college classes. Maybe you need to visit family in another country. You can plan for these goals and save money. Then you might not have to use a credit card or borrow money to pay.

How else can I save money?

You can try these ways to help save money:

• For one month, write down everything you spend. Small expenses, like a cup of coffee, can add up to a lot of money. When you know where you are spending your money, you can decide what you might not want to buy.
• Pay with your credit card only if you can pay the full amount when the bill comes. That way, you do not pay interest on what you owe.
• Pay your bills when they are due. That way, you will not owe late fees or other charges.
• Keep the money you are saving separate from the money you spend.
• Consider opening a savings account in a bank or credit union. Read more about opening a bank account.
• If you keep cash at home, keep the money you are saving separate from your spending money.  Keep all your cash someplace safe.

What I did not buy this month:

A budget is a plan that shows you how you can spend your money every month. Making a budget can help you make sure you do not run out of money each month. A budget also will help you save money for your goals or for emergencies.

How do I make a budget?

Write down your expenses. Expenses are what you spend money on. Expenses include:

• bills that are the same each month, like rent
• bills that might change each month, like utilities
• bills you pay once or twice a year, like car insurance

Other expenses , like :

• entertainment
• school supplies
• money for family
• unplanned expenses, like car repairs or medical bills
• credit card bills

You might have bills that change every month. Look at what you paid for the same month last year. You might need $200 for your gas bill in January, but $30 in July.

Write down how much money you make. This includes your paychecks and any other money you get, like child support.

Subtract your expenses from how much money you make. This number should be more than zero. If it is less than zero, you are spending more money than you make. Look at your budget to see what you do not need or what you could spend less on.

How do I use my budget?

You can use your budget every month:

• At the beginning of the month, make a plan for how you will spend your money that month. Write what you think you will earn and spend.
• Write down what you spend. Try to do this every day.
• At the end of the month, see if you spent what you planned.
• Use the information to help you plan the next month’s budget.

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Reasons Why You Should Budget Your Money

Budgeting stops overspending, helps you reach your goals, makes it easier to save.

• Makes More Room for the "Fun" Stuff

Allows You To Be Flexible

Puts you in control, can be simple, frequently asked questions (faqs).

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Making a budget is the most important thing you can do to manage your money, but many people are reluctant to take this beneficial step. You may associate budgeting with restrictions and a lot of hassle and headaches. Or you may feel like you do not make enough money to warrant a budget. However, budgeting is essential because it can help you save money instead and eliminate overspending, and also enable you to make the most of every dollar.

In this article, discover seven reasons to budget your money that may help you look at the process in a new light.

Spending money without thinking carefully about where it all goes can easily lead you to overspend on a monthly basis. Overspending limits your spending power in the future, as more and more of your income has to be applied to debt payments.

If you are worried about restricting your spending, consider what it would feel like to have the majority of your paycheck applied to credit card payments. The stress of finding a way to pay for your everyday needs can be astronomical when most of your paycheck is already spoken for.

By using a budget to take a hard look at your income compared to your expenses, you will be better able to determine when to stop spending.

There are many ways to budget, and one method may work better for one person, while another works best for someone else. A budgeting app can make the process easier. The Consumer Financial Protection Bureau (CFPB) also offers a tool to see where your money is going each month.

With a budget, you can move to focus your money on the things that are most important to you. Some goals to work toward may be getting out of debt, saving up for a home, or working on starting your own business. Your budget creates a plan and lets you track it to make sure you are reaching your goals.

One method financial experts recommend using when trying to reach a financial goal is the 50/30/20 budgeting rule . Through this strategy, you allocate your budget according to three categories: needs, wants, and financial goals. This way, you will be setting aside money in your budget each month for your goals, typically in a savings account.

People who do not have a budget tend to save less money than people who do, according to America Saves, a campaign managed by the nonprofit Consumer Federation of America. That's because when you budget, you assign your money to do certain things.

You can have money automatically transferred into a savings or investment account each month. This way, you'll be less likely to dip into your savings each month. As you do those things, you can begin to build wealth and give yourself true financial freedom.

Makes More Room for the "Fun" Stuff

When you're budgeting, you get to decide how much you spend in each category. So if you want to put a significant portion of your money toward leisure activities , you shouldn't feel bad about that, as long as you are still saving and meeting your other needs.

Budgeting is not about limiting the fun in your life; it's about opening up opportunities to have more fun. And helping you worry less about the financial safety your future.

By categorizing your budget, you will be able to see where everything is going and have less reason to be anxious about paying for future expenses. Basic monthly budget worksheets are a good place to start.

Budgeting can be flexible, in that you can move money between categories as you need to throughout the month. Generally, you should restrict yourself from touching the money you have set aside for savings, but you can adjust the amount you spend on each other category as you go.

It's another way that you can keep yourself from overspending. It also allows you to recognize issues within your spending habits and then adjust so you do not end up spending more than your means. Budgeting apps and software are great for beginners, as they can automate categories for you and then move things around based on your preferences.

Budgeting can help you gain a feeling of control over your money. It allows you to prioritize your spending, track how you are doing, and realize when you need to make changes. A budget puts a solid plan into place that is easy to follow and gives you the chance to plan and prepare for the future.

It is the biggest tool you have to change your financial future, and it gives you the power to make changes starting today. 

Once you make your budget, it is important to consistently check on it in order to maintain control and prevent overspending. Making decisions at the beginning of the month makes it easier to manage your money.

You can simplify the budgeting process by using percentages of your income for set expenses, savings, and spending money. Then you simply track the money as you utilize it.

Keep at it: The first few months of budgeting are a bit more difficult as you adjust your categories to find the amounts that work for your situation. If you have a roommate, friend, or partner who is also interested in getting a handle on their finances, consider making a budget together. This way, you can hold each other accountable, making the process easier and more fun.

What is a budget?

A budget is a plan that helps you prioritize your spending. It tracks how much income you have each month, and then assigns a portion of that income to a category, such as housing payments, groceries, or savings. By planning for and tracking where your money will go, a budget prevents you from spending money you don't have.

Who needs to have a budget?

A budget is an important tool for everyone, no matter your income level. It can help anyone work toward financial goals, avoid bad debt , and save for the future.

When is a cash budget important?

An all-cash budget can help if you are prone to overspending. Using credit cards can allow you to spend money you don't have, which creates debt. If you only give yourself cash to use, though, you can't spend more money than you have available. This kind of budget pairs well with the envelope system .

Consumer Financial Protection Bureau. " Use This Budget Tool To See How Much You Make and Spend Each Month ."

Discover. " How to Set Financial Goals—and Crush Them ."

America Saves. " 54 Ways to Save Money ."

SoFi. " Building Flexibility Into a Budget ."

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How To Create a Budget as a College Student

Emily Wong is a writer at Scholarships360. She’s worked as a social media manager and a content writer at several different startups, where she covered various topics including business, tech, job recruitment, and education. Emily grew up and went to school in the Chicago suburbs, where she studied economics and journalism at Northwestern University.

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Maria Geiger is Director of Content at Scholarships360. She is a former online educational technology instructor and adjunct writing instructor. In addition to education reform, Maria’s interests include viewpoint diversity, blended/flipped learning, digital communication, and integrating media/web tools into the curriculum to better facilitate student engagement. Maria earned both a B.A. and an M.A. in English Literature from Monmouth University, an M. Ed. in Education from Monmouth University, and a Virtual Online Teaching Certificate (VOLT) from the University of Pennsylvania.

Between looking for a roommate and mentally preparing to start a new chapter in your life, planning for college can be overwhelming. It can be even more stressful when you realize that on top of this, you’re also going to need to know how to create a budget as a college student.

Fortunately, we’re here to help with our guide to budgeting for college students. By starting early and making a financial plan before school even starts, you can put aside your money concerns and focus on making friends and acing your classes.

Related: How to save money in college

1. List out your expenses

The first and most important step in creating a budget is making a list of all of the money that you anticipate going out. It’s also a good idea to separate the fixed or non-negotiable expenses from those that you can control so you know where you have room for adjustment in case your funds get tight.

Potential fixed expenses

• Rent/housing
• School meal plan
• Student organization fees/dues
• Car insurance
• Monthly subscriptions

Potential variable expenses

• Entertainment
• Birthday/Christmas gifts

For each of these items, you’ll want to estimate how much you’ll spend over the course of each month or semester. That might be pretty simple for fixed expenses like rent or utilities, but you might have to do some research for others. 

For example, if you want to know how much money you’ll spend on groceries each month, you’ll probably want to figure out which grocery stores will be near you and what you’ll need to buy for your typical diet.

2. Figure out your income

After listing out all of your expenses, it’s time to figure out how you’re going to cover them. Before you leave for college, you’ll want to talk to your family about what costs you’re responsible for and what they’ll be contributing, if anything. Once you get that out of the way, you can consider other sources of income to pay for what’s left:

Potential sources of income

• Personal savings
• Summer job earnings
• Student loans

If you anticipate working during the school year, you can also include that as a potential source of income. However, you’ll want to err on the side of underestimating your future earnings so that your budget isn’t thrown out of balance if something comes up and you miss some work. 

Related: How to make money in college

It’s also important not to overschedule yourself in your efforts to earn money. While it can be rewarding to have the means to support yourself, you don’t want your job to take a toll on your health or your grades.

Also read: Does financial aid count as income

3. Track your spending

Once you have your cost and income estimations finalized, you’ll want to put them into a budget in order to keep track of your progress throughout each month. You can find plenty of free options for budget templates on websites like Pinterest, or you can try this personal monthly budget spreadsheet from Microsoft Office.

There’s no point in having a budget if you don’t stick to it, so it’s important to update your spreadsheet every time you receive a paycheck or make a purchase. Some recommend checking it every day to make sure it’s up to date, while others will save their receipts and carve out some time for budgeting on the weekends. You’ll have to figure out what works best for you.

4. Save money where you can

Cutting back on costs can make your money go a lot farther, but you’ll want to do so strategically. For example, while eating ramen noodles every day may save money, it can also leave you malnourished and hungry. Therefore, you’ll want to find ways to spend less without giving up your health or happiness.

Also see: Top financial tips for college students

Find an affordable living situation

Rent or housing is probably going to be one of the most expensive items on your budget line, so it’s a good place to start when trying to save. While you might enjoy having your own space, you might want to consider getting a roommate to cut down your rent. However, you’ll want to spend some time searching for one with compatible living habits in order to avoid conflict.

You can also try to minimize your rent in the first place by looking at apartments in less “hip” or popular neighborhoods. Typically, buildings farther from campus will be significantly cheaper than those closer in, even for the same quality of facilities.

Related: How to pay for housing

Take advantage of student discounts

Many stores and restaurants offer student discounts, but it can be hard to find them. When you walk around town, look out for stickers in the window or signs advertising discounts for college students. You’ll typically need your student ID to get the deal, so you’ll want to keep that handy at all times.

Even online, you can check out websites like UniDays or StudentBeans that will give you a list of companies that offer student discounts for a variety of goods and services, from fashion to entertainment. You can also find great student deals for many subscription services, including Amazon Prime, Spotify and Apple TV+.

Also see: How to get a free laptop for college

No matter how much you try to hold back your spending, some purchases are unavoidable. Even so, whether you’re furnishing a new apartment or buying a textbook, it’s always better to look at resale options first. Since you’ll only be using most of your stuff for four years at the most, it’s usually not worth it to buy anything brand-new.

Websites like Craigslist or Facebook Marketplace offer a wide variety of used goods from local sellers, so you won’t even have to pay for shipping. If you’re shopping for clothing, you can check out apps like Poshmark or Mercari.

5. Earn supplemental income

Another way to improve your budget is by increasing your income. While it’s probably not a good idea to take on a full-time job during school, you can still take advantage of odd jobs to make some extra cash. 

See also: How to find online jobs for college students

Many students will babysit or tutor in their free time, especially because you can typically set your own availability and manage your own clients. You can also check out websites like TaskRabbit or Fiverr to put your skills to work.

You can also make some extra cash by reselling clothes you haven’t worn in a while or textbooks from classes you’ve finished. Again, Craigslist and Facebook Marketplace can be convenient places to list your item to sell for pickup. 

On the other hand, if you don’t mind dealing with shipping, you can try eBay or Amazon. You can also check out thrift shops or consignment stores in your area that accept drop-offs.

Keep reading: Financial tips for college students

Frequently asked questions about creating a budget as a college student

How should i prioritize my spending, any additional tips for budgeting as a college student.

• Build an emergency fund to cover unexpected expenses
• Be honest about your spending habits and set realistic goals
• If you use credit cards, pay off the balance each month to avoid high-interest charges
• Reward yourself for sticking to your budget!

How can I increase my income as a college student?

Should i use cash or credit cards for budgeting, how can i manage social activities on a budget, is it alright to treat myself occasionally, scholarships360 recommended, trending now.

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Creating a Budget: A Guide to Financial Planning

By GGI Insights | April 3, 2024

Table of contents

A budget is a tool that helps individuals and families manage their income and expenses, allowing them to make informed decisions about their money. In this comprehensive guide, we will dive deep into the process of budget creation, explore effective budgeting strategies, discuss integrating savings and investments into your budget, managing debt, adjusting your budget over time, involving your family in the budgeting process, and even explore advanced budgeting techniques. Let's embark on this journey to financial freedom together!

The Basics of Budget Creation

Understanding the purpose of a budget.

Before we dive into the nitty-gritty details of budget creation, it's important to first understand the purpose of a budget. A budget serves as a roadmap for your financial journey, helping you allocate your income effectively and track your expenses. It allows you to identify areas where you may be overspending and make adjustments accordingly. Ultimately, a budget empowers you to take control of your finances and work towards your financial goals as part of broader financial planning .

Creating a budget is not just about crunching numbers; it's about gaining a deeper understanding of your financial habits and priorities. By setting financial goals and creating a budget to achieve them, you are taking a proactive approach towards your financial well-being.

When you have a budget in place, you can make informed decisions about how to spend your money. It helps you prioritize your expenses and make sure that your money is being used wisely. A budget also provides a sense of security and peace of mind, knowing that you have a plan in place for your financial future.

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Identifying Income Sources and Monthly Expenses

The first step in creating a budget is to identify all your sources of income and monthly expenses. Your income sources may include your salary, freelance work, rental income, or any other sources of money coming in regularly. Similarly, your monthly expenses encompass everything from rent or mortgage payments to utility bills, groceries, transportation, and entertainment expenses. By carefully analyzing these elements, you gain a clear picture of your financial situation and can make informed decisions moving forward.

When identifying your income sources, it's important to consider both your primary and secondary sources of income. This could include income from investments, side hustles, or any other sources that contribute to your overall financial well-being. By taking into account all your income sources, you can create a more accurate and comprehensive budget.

As for your monthly expenses, it's crucial to be thorough and include all necessary expenses. This includes fixed expenses such as rent or mortgage payments, insurance premiums, and loan repayments, as well as variable expenses like groceries, transportation, and entertainment. By categorizing your expenses, you can gain a better understanding of where your money is going and identify areas where you may need to make adjustments.

Additionally, it's important to consider any irregular or unexpected expenses that may arise. This could include medical bills, car repairs, or home maintenance costs. By setting aside a portion of your budget for these types of expenses, you can be better prepared for any financial surprises that come your way.

Step-by-Step Process for Building a Budget

Calculating your total income.

Once you have identified all your sources of income, the next step is to calculate your total income. Add up all the income streams to determine your monthly take-home pay. This figure forms the foundation of your budget and acts as a starting point for your financial planning.

Calculating your total income is an essential step in building a budget. It allows you to have a clear understanding of how much money you have available to allocate towards different expenses and savings goals. By knowing your total income, you can make informed decisions about how much you can afford to spend and how much you should save.

When calculating your total income, it's important to consider all sources of income, including your salary, freelance work, rental income, and any other form of income you receive regularly. By including all sources, you ensure that your budget is accurate and reflective of your true financial situation.

Tracking and Listing All Expenses

With your income in hand, it's time to track and list all your expenses. This step requires diligence and attention to detail. Carefully review your bank statements, credit card bills, and receipts to identify each expense you incur regularly. Categorize your expenses into fixed expenses (e.g., rent, utility bills) and variable expenses (e.g., groceries, dining out). This comprehensive overview enables you to gain a clear understanding of where your money is going and identify areas where you may need to cut back.

Tracking and listing all your expenses is a crucial part of building a budget. It allows you to have a complete picture of your spending habits and helps you identify areas where you may be overspending. By categorizing your expenses into fixed and variable, you can further analyze your spending patterns and make adjustments as needed.

When tracking your expenses, it's important to be thorough and include even the smallest expenses. Sometimes, it's the little things that add up and can have a significant impact on your budget. By paying attention to every expense, you can make more informed decisions about where to allocate your money and identify potential areas for savings.

Effective Budgeting Strategies

Creating and sticking to a budget is an essential part of managing your finances effectively. It allows you to track your income and expenses, prioritize your spending, and work towards your financial goals. While there are various budgeting strategies available, two popular approaches are the zero-based budgeting method and the 50/30/20 rule.

Zero-Based Budgeting Approach

The zero-based budgeting approach is a method that requires you to allocate every dollar of your income towards a specific purpose, leaving no money unaccounted for. Unlike traditional budgeting, where you may have a set amount allocated to different categories, zero-based budgeting ensures that you prioritize your expenses based on their importance and helps you eliminate unnecessary spending.

With this approach, you start from scratch each month, giving every dollar a job. You carefully evaluate your income and expenses, assigning each dollar to specific categories such as rent/mortgage, utilities, groceries, transportation, debt repayment, savings, and discretionary spending. By doing so, you are more likely to stay on track and achieve your financial goals.

For example, let's say your monthly income is $3,000. With zero-based budgeting, you would allocate every dollar towards different categories, ensuring that you have a plan for each dollar. This approach helps you become more conscious of your spending habits and encourages you to make intentional choices with your money.

The 50/30/20 Rule for Budget Allocation

Another popular budgeting strategy is the 50/30/20 rule, which involves allocating your income into three broad categories. This approach provides a balanced framework for managing your finances and ensures that you prioritize both your short-term and long-term financial needs.

According to the 50/30/20 rule, fifty percent of your income should be allocated towards essential expenses such as rent/mortgage, utilities, groceries, transportation, and insurance. These are the necessary expenses that you need to cover to maintain your daily living standards.

Thirty percent of your income is dedicated to discretionary expenses, including dining out, entertainment, hobbies, and non-essential shopping. This category allows you to enjoy your money and indulge in activities that bring you joy and fulfillment.

Finally, twenty percent of your income is allocated towards savings and investments. This portion helps you build an emergency fund, save for future goals such as buying a house or starting a business, and invest for long-term wealth accumulation. By prioritizing savings and investments, you are securing your financial future and ensuring that you have a safety net in case of unexpected expenses or emergencies.

For example, if your monthly income is $4,000, you would allocate $2,000 (50%) towards essential expenses, $1,200 (30%) towards discretionary expenses, and $800 (20%) towards savings and investments. This balanced approach allows you to meet your immediate needs, enjoy some flexibility in your spending, and save for the future.

Both the zero-based budgeting approach and the 50/30/20 rule provide effective strategies for managing your finances. The key is to find the method that works best for you and aligns with your financial goals and priorities. Remember, budgeting is not about restricting yourself but rather about making intentional choices with your money to achieve financial freedom and security.

Integrating Savings and Investment into Your Budget

Managing your finances effectively involves more than just paying bills and covering expenses. It requires a strategic approach that includes prioritizing savings and exploring investment opportunities. By incorporating these elements into your budget, you can set yourself up for a more secure and prosperous financial future.

Prioritizing Savings in Your Financial Plan

When it comes to building wealth and achieving financial stability, savings should be a top priority. By setting aside a portion of your income for savings, you create a safety net that can protect you from unexpected financial challenges. Whether it's a medical emergency, a sudden job loss, or a major home repair, having a well-funded emergency fund can provide peace of mind and help you weather any storm that comes your way.

But savings go beyond just emergency funds. It's also about planning for the future and setting yourself up for long-term financial success. By consistently saving a portion of your income, you create a foundation for growth and financial security. It allows you to take advantage of opportunities that may arise, such as investing in a new business venture, purchasing a home, or funding your child's education.

Experts recommend aiming to save at least three to six months' worth of living expenses as an emergency fund. This amount provides a cushion that can cover your basic needs in case of a financial setback. However, it's important to note that the ideal amount may vary depending on your individual circumstances, such as your income, expenses, and overall financial goals.

Exploring Investment Options for Long-term Growth

While savings provide a solid foundation, incorporating investments into your budget can help your money grow over time. Investments offer the potential for long-term financial growth and can play a crucial role in securing a comfortable retirement.

When it comes to investment options, there are various avenues to explore. Stocks, bonds, mutual funds, and real estate are just a few examples of investment vehicles that can potentially generate returns. Each option comes with its own set of risks and rewards, so it's important to do thorough research and consider consulting with a financial advisor to determine the best approach for your financial goals.

Stocks, for instance, represent ownership in a company and can offer the potential for significant returns. However, they also come with a higher level of risk compared to other investment options. Bonds, on the other hand, are considered safer investments as they represent debt issued by governments or corporations. They offer a fixed interest rate and can provide a steady income stream.

Mutual funds are a popular choice for many investors as they offer diversification by pooling money from multiple investors to invest in a portfolio of stocks, bonds, or other assets. This diversification helps spread the risk and can potentially lead to more stable returns over time.

Real estate investment, whether through direct ownership or real estate investment trusts (REITs), can also be a lucrative option. Real estate has historically been a stable and appreciating asset class, offering both income and potential capital appreciation.

Regardless of the investment option you choose, it's important to carefully consider your risk tolerance, time horizon, and financial goals. Investing is a long-term commitment, and it's crucial to have a well-thought-out strategy in place.

Integrating savings and investment into your budget is essential for long-term financial success. By prioritizing savings and exploring investment options, you can build a solid financial foundation, protect yourself from unexpected financial challenges, and create opportunities for growth and wealth accumulation. Take the time to educate yourself about different investment options, consult with professionals, and make informed decisions that align with your financial goals.

Managing Debt within Your Budget

Debt can be a significant obstacle to financial well-being, but by managing it effectively, you can regain control of your finances. Implementing strategies such as the debt snowball or debt avalanche methods can help you systematically pay off your debts.

The debt snowball method involves prioritizing your debts based on their balances. You start by paying off the smallest debt first while making minimum payments on the others. Once the smallest debt is paid off, you move on to the next smallest debt, and so on. This method provides a sense of accomplishment as you see your debts disappearing one by one.

On the other hand, the debt avalanche method focuses on paying off debts with the highest interest rates first. By tackling the most expensive debts, you can save more money in the long run. This method may require more discipline and patience, as it may take longer to see significant progress.

In addition to these strategies, it's important to make extra payments whenever possible. By allocating extra funds towards your debts, you can accelerate the repayment process and reduce the overall interest you'll pay. Look for opportunities to increase your income or cut back on expenses to free up more money for debt repayment.

Avoiding the accumulation of additional debt is also crucial in managing your overall financial situation. It's important to resist the temptation of using credit cards or taking on new loans unless absolutely necessary. By practicing mindful spending and living within your means, you can prevent your debt from spiraling out of control.

Balancing Debt Payments with Other Financial Goals

While eliminating debt is essential, it's also crucial to balance debt payments with other financial goals. Allocating a reasonable portion of your budget towards debt repayment is important, but it's equally important to ensure that you continue saving for emergencies and investing for the future.

Building an emergency fund is essential to protect yourself from unexpected expenses or financial setbacks. Aim to save at least three to six months' worth of living expenses in a separate savings account. This will provide you with a safety net and prevent you from relying on credit cards or loans in times of crisis.

Investing for the future is another important aspect of financial planning. While it may seem counterintuitive to invest while in debt, it's crucial to start building wealth for the long term. Take advantage of retirement accounts such as 401(k)s or IRAs, as they offer tax advantages and potential growth over time. By starting early and consistently contributing to your investments, you can benefit from compounding returns and secure a comfortable retirement.

It's also important to consider other financial goals such as saving for a down payment on a house, funding your children's education, or taking a dream vacation. By prioritizing these goals alongside debt repayment, you can maintain a balanced approach to your finances.

Remember, managing debt is a journey that requires discipline and determination. By implementing effective debt reduction strategies, making extra payments, and balancing debt payments with other financial goals, you can conquer your debts and pave the way to a debt-free future.

Adjusting Your Budget Over Time

A budget is not a static document. It requires periodic adjustments to accommodate life changes and financial shifts. Be proactive and regularly review your budget to reflect changes in income, living expenses, or financial goals. Whether you experience a salary increase, move to a new city, or have a growing family, adapt your budget accordingly to maintain its effectiveness.

When it comes to adjusting your budget, it's important to consider the various factors that can impact your financial situation. For example, if you receive a salary increase, you may want to allocate a portion of that extra income towards savings or paying off debt. On the other hand, if you move to a new city, you'll need to account for changes in housing costs, transportation expenses, and even the cost of living.

Another important aspect of adjusting your budget is taking into account any changes in your financial goals. As your priorities shift over time, so should your budget. For instance, if you're planning to start a family, you'll need to budget for additional expenses such as childcare, healthcare, and education. By regularly reviewing and adapting your budget, you can ensure that you're adequately prepared for these life changes.

Annual Financial Check-ups and Adjustments

In addition to reviewing your budget as life changes occur, consider conducting an annual financial check-up. This is an opportunity to evaluate your financial progress, revisit your goals, and make any necessary adjustments. By setting aside time each year to assess your financial situation, you can stay on track and continue making strides towards your desired financial future.

During your annual financial check-up, take a comprehensive look at your income, expenses, savings, and investments. Are you on track to meet your savings goals? Are there any areas where you can cut back on expenses or increase your income? Use this time to identify any areas of improvement and make the necessary adjustments to your budget.

An annual financial check-up allows you to reassess your financial goals. Are they still aligned with your current priorities and aspirations? If not, take the opportunity to redefine your goals and adjust your budget accordingly. This will ensure that your budget remains relevant and effective in helping you achieve your desired financial future.

Adjusting your budget over time is essential to accommodate life changes and financial shifts. By being proactive and regularly reviewing your budget, as well as conducting an annual financial check-up, you can adapt your budget to reflect changes in income, living expenses, or financial goals. Remember, a well-adjusted budget is a powerful tool in helping you achieve financial stability and success.

Involving Family in the Budgeting Process

Collaborative budgeting with family members.

Budgeting is not a solo endeavor; it involves the entire family. Engage your family members in the budgeting process and encourage open discussions about financial goals and priorities. By involving everyone, you create a sense of ownership and shared responsibility. This approach to budgeting for beginners is particularly effective, as it fosters a supportive financial environment for all family members and introduces them to basic financial management in a practical, inclusive way.

Teaching Financial Responsibility to Children

Teaching children about financial responsibility is an invaluable investment in their future. Include children in budget discussions, educate them about the importance of money management, and encourage them to save and make wise financial decisions.  By providing early exposure to budgeting advice , you’re equipping them with the tools they need for a prosperous financial journey. Instilling these habits at an early age equips them with the tools they need for a prosperous financial journey.

Advanced Budgeting Techniques

Forecasting future income and expenditures.

As you become more experienced in budgeting, you may explore advanced techniques such as forecasting future income and expenditures. By projecting your income and expenses based on historical patterns and upcoming events, you can plan for potential financial scenarios and make informed decisions. This level of detail and foresight can take your budgeting skills to the next level.

Utilizing More Sophisticated Budgeting Tools

With advancements in technology, there is an array of sophisticated budgeting tools available at your fingertips. These tools offer features such as expense tracking, goal setting, and even automated savings. Explore various budgeting apps, spreadsheets, or online platforms to find the one that caters to your specific needs. Leveraging these tools can streamline your budgeting process and enhance your financial planning experience.

Budgeting is a fundamental aspect of financial planning. By creating a budget and implementing effective budgeting strategies, you take control of your finances and set yourself up for success. Remember to regularly review and adjust your budget as needed, involve your family in the process, and explore advanced techniques to optimize your financial journey. With dedication, discipline, and an unwavering commitment to your financial goals, you can unlock a brighter and more secure financial future. Start today!

*** This article is intended for informational purposes only and should not be construed as financial advice. Always consult a professional financial advisor before making investment decisions. ***

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Helps You Work Toward Long-Term Goals

Can keep you from overspending, can make retirement saving easier, helps you prepare for emergencies, can reveal spending habits.

• Frequently Asked Questions

The Bottom Line

• Personal Finance
• Financial Literacy

What Are the 5 Purposes of Budgeting?

The importance of making a budget is a financial lesson that can’t be overemphasized. When you first go on your financial journey, following a budget can help you practice basic money habits.

Still not convinced? Below are five good reasons why everyone should create and stick to a budget .

Key Takeaways

• A budget is simply a spending plan that takes into account estimated current and future income and expenses for a specified future time period, usually a year.
• Having a budget keeps your spending in check and makes sure that your savings are on track for the future.
• Budgeting can help you set long-term financial goals, keep you from overspending, help shut down risky spending habits, and more.

A budget helps you figure out your long-term goals and work toward them. If you just drift aimlessly through life, tossing your money at every shiny, new object that happens to catch your eye, how will you ever save up enough money to buy a car or put a down payment on a house?

A budget forces you to map out your goals, save your money, keep track of your progress, and make your dreams a reality. By seeing what money you earn and what money you have going out through a budget, you can create a map for where you need to go to get your goal, whether that is purchasing a home in a few years or going to graduate school.

Budgeting can also be used for shorter-term goals. If the brand-new Xbox game or the cashmere sweater in the store window is unattainable right now, then a budget can help you understand what you need to do to get to that goal.

Far too many consumers spend money they don’t have—and we owe it all to credit cards . The average credit card debt per borrower rose to $6,360 in Q4 of 2023, according to credit bureau TransUnion.

Before the age of plastic, people tended to know whether they were living within their means. At the end of the month, if they had enough money left to pay the bills and sock some away in savings, they were on track. These days, people who overuse and abuse credit cards don’t always realize they’re overspending until they’re drowning in debt .

However, if you create and stick to a budget, you’re more likely to not find yourself in this position. You’ll know exactly how much money you earn, how much you can afford to spend each month, and how much you need to save.

Let’s say you spend your money responsibly, follow your budget to a T, and never carry credit card debt beyond monthly due dates. In addition to spending wisely, budgeting can make saving more achievable.

It’s important to build regular saving and investment contributions into your budget. If you set aside a portion of your earnings each month to contribute to your individual retirement account (IRA) , 401(k) , or other retirement funds, you’ll eventually build a nice nest egg . Although you may have to sacrifice a little now, it will be worth it down the road.

Here’s an example of how that could work: Let’s say Trina started a new job last year and wants to take advantage of the employer’s 401(k) plan and matching contributions . She knows that including her own monthly plan deferral from her paycheck in her budget as a recurring expense will help her be consistent in building retirement savings. She’s 36 years old, so she knows that for the 2023 tax year , people her age can contribute a maximum of $22,500 to their 401(k), before employer matching funds.

So, using a calculator provided by her 401(k)’s management firm, she figures out that she should defer $433 per week, or $1,732 per month, from her salary to max out her potential annual contribution for 2023. She adds that figure into her budget spreadsheet under expenses and makes it an automatic subtraction from her disposable income , to separate her retirement savings from her cash available for other expenses.

In some cases, it may seem like a good idea to add larger amounts to your retirement account, but if it means that the reduction in disposable income will result in rising credit card and other debts incurred for everyday expenses, then boosting retirement savings could actually have a negative effect on your  bottom line . Everyone’s approach will vary based on their individual financial situation.

Life is filled with unexpected surprises. When you get laid off , face a costly unexpected home repair, become sick or injured, go through a divorce , or have a death in the family, those circumstances can lead to serious financial turmoil. In these situations, an emergency fund comes in handy.

An emergency fund should consist of at least three to six months’ worth of living expenses, and it should be accounted for when budgeting. This extra money will ensure that you don’t dip into other funds saved for long-term financial goals, such as paying off debt.

Of course, it will take time to save up three to six months’ worth of living expenses . Don’t try to place the majority of your paycheck into your emergency fund right away. The best strategy is to build it into your budget, set realistic goals, and start small. Even if you put just $10 to $30 aside each week, your emergency fund will slowly build up. Budgeting apps, such as Mint or YNAB , provide tools for setting up an emergency fund, depending on your chosen approach.

Building a budget forces you to take a close look at your spending habits . When reviewing your expenses, you may notice that you’re spending money on things you don’t need, such as a cable TV subscription. Budgeting allows you to rethink your spending habits and refocus your financial goals.

Taking a look at your expenses, you may see that one month, you spent more money on eating out than cooking at home. By reviewing your budget, you can make effective changes as a result. If you see that you’re overspending target amounts set in your budget for such discretionary items, you may choose to adjust how much you commit to luxury or nonessential spending in lieu of saving for a new car or a major home improvement project that could also add to your place’s resale value.

Why is a budget important?

A budget helps create financial stability. By tracking expenses and following a plan, a budget makes it easier to pay bills on time, build an emergency fund, and save for major expenses such as a car or home. Overall, a budget puts a person on stronger financial footing for both the day-to-day and the long term.

What is an emergency fund?

An emergency fund is three to six months’ worth of living expenses set aside in case of an unexpected life event, such as employment termination, illness, or a hefty home maintenance bill.

What are some key reasons to have a budget?

There are many reasons to have a budget, depending on the individual. A budget can often help build financial independence and freedom. A budget can also set you on the right path to achieving your financial goals, spending within your means, saving for retirement, building an emergency fund, and analyzing your spending habits.

A budget is simply a spending plan that takes into account expected income and expenses for a specified period of time. It can bring you one step closer toward financial security. Having and sticking to a budget can keep your spending in check and assure that your savings for emergencies and longer-term goals, such as a comfortable retirement, stay consistent.

TransUnion. " Bankcard Balances Surge Past $1 Trillion as All Risk Tiers Drive Up Their Credit Card Balances ."

Internal Revenue Service. “ Retirement Topics—401(k) and Profit-Sharing Plan Contribution Limits .”

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What is budgeting what is a budget.

Budgeting is the process of creating a plan to spend your money . This spending plan is called a budget . Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do.

If you don't have enough money to do everything you would like to do, then you can use this planning process to prioritize your spending and focus your money on the things that are most important to you.

Why is Budgeting so Important?

What about budget forecasting and planning.

Once you create your first budget, begin to use it and get a good feel for how it can keep your finances on track , you may want to map out your spending plan or budget for 6 months to a year down the road. By doing this you can easily forecast which months your finances may be tight and which ones you'll have extra money. You can then look for ways to even out the highs and lows in your finances so that things can be more manageable and pleasant.

Extending your budget out into the future also allows you to forecast how much money you will be able to save for important things like your vacation , a new vehicle, your first home or home renovations, an emergency savings account or your retirement. Using a realistic budget to forecast your spending for the year can really help you with your long term financial planning. You can then make realistic assumptions about your annual income and expense and plan for long term financial goals like starting your own business, buying an investment or recreation property or retiring.

Learn how to budget and create a spending plan.

Home — Essay Samples — Science — Science and Culture — The Importance of Budgeting

The Importance of Budgeting

• Categories: Budgeting Science and Culture

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Words: 424 |

Published: Mar 16, 2024

Words: 424 | Page: 1 | 3 min read

Table of contents

1. financial planning, 2. control spending, 3. achieve financial goals, 4. emergency preparedness, 5. improve financial literacy.

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How to create a budget Essay Example

• Pages: 4 (858 words)
• Published: August 2, 2016
• Type: Essay

Money is something that everyone worries about at some point in their life – and learning to create a budget is one of the most efficient ways you can manage your money. Everyone is capable of building a budget and making a few simple changes that will affect their financial future. Regardless, if you feel that your finances are under control or not, a budget will make sure that you are using your money the way you want to. Taking a little extra time to create a budget that works for your lifestyle will give you an idea on where your money is going and take you one step closer to financial freedom.

The idea of setting up a budget can be overwhelming but we can simplify it by breaking the task down into a few easy ste

ps. Before you can really accomplish setting up a budget you will need to: track all your expenditures, classify your expenses, pick out a budget worksheet, and decide on a goal for your budget. Creating a budget will lay out a road map for your finances – the more time you spend setting up your budget the less you will be spending worrying about your financial future. So let’s get started! Tracking all your expenditures is the first step in creating a successful budget; you can choose to do this anyway that works for you.

Many people choose to collect hard copies of receipts while other tech-savvy folks keep a record on their smartphone. Whatever works for you – just do it! Start by collecting all your receipts or tracking your spending over

2 week long period. Every receipt for every transaction should be kept for one week– even the $1. 00 cup of coffee. By tracking each of your expenditures you can identify how you are really spending your money. At the same time, begin to classify your expenses by dividing them into categories. Start with bigger categories or expenses that are considered essentials.

Essentials are expenses or bills that you must pay like mortgage or rent, utility bills, groceries, car payments, etc. Then, start breaking it down from there into smaller categories these are our non-essentials like new furniture, pizza delivery, concerts, movies, etc. While completing these processes of identifying your spending habits and your expenses you will already be one step closer to being in control of your money and spending habits. Next, find yourself a budget worksheet online. This is the easiest way to go about tracking your income and expenditures, and any other miscellaneous expenses that you want to include.

Another easy way to set your budget up for success is to find a budget app for your smartphone – this way you will always have it at your fingertips. Try to focus on specific categories that you want to pay attention to, like ATM withdrawals or spending too much on entertainment or eating out. Otherwise you may end up driving yourself crazy with the details of the budget worksheet. Now, get all of your information in one place and start plugging in numbers to your budget worksheet. Start by listing your monthly income, and then subtract the essential expenses from your total monthly income.

If you have money left

over subtract the “extras” or non-essentials expenses that you would like to have. If you don’t have any money left over start looking into things that are wants and not needs to see where you can cut back. Go through each item and see what prices can be negotiated like your cell phone bill or internet plan. After all that, if you still have money left over – awesome! If you included credit card debt or any other revolving debt into your monthly expenses you should use that left over money to pay down those debts before stashing it away in a savings account that accrues less that 1% interest every month.

The final step is to set a goal for yourself and your budget. What do you hope to achieve by creating this budget, maybe to save for retirement or something more fun like a Hawaiian vacation? Once you have decided on a goal, limit your spending and aim to save 10% of your income every month to help you reach that goal. By setting a goal you are one step closer to achieving more financial freedom and the ability to be worry free and ultra-efficient in the way your manage your money. Now that you have your budget set up you will be able to track your money uch more efficiently.

Setting up the budget took a little bit of work initially but the more that you use it you’ll see how easy it can be to account for your spending habits. The work will have all paid off once you reach the financial goal you have set for yourself or

once you find yourself out of debt. The work doesn’t stop here though – continue to stay organized with you finances and you will be amazed at the control you can have with your finances. Nothing is more invigorating than having financial freedom and a stress free financial life.

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Why Is Budgeting Important in Business? 5 Reasons

• 06 Jul 2022

There are few skills as critical to running a business as budgeting. Yet, over half of the executives surveyed in a 2019 McKinsey study report feeling dissatisfied with the transparency surrounding their organizations’ budgets.

Any employee—especially managers—should understand budgeting and how it can profoundly impact an organization.

Here’s a primer on the importance of budgeting in business.

Access your free e-book today.

What Is Business Budgeting?

Budgeting is the process of preparing and overseeing a financial document that estimates income and expenses for a period. For business owners, executives, and managers, budgeting is a key skill for ensuring organizations and teams have the resources to execute initiatives and reach goals.

A basic budget consists of projected income and expenses for a given period (for instance, the upcoming quarter or year). After expenses are subtracted from projected income, the leftover money can be allocated to projects and initiatives, ensuring you’re not planning to overspend.

Budgets from previous periods can be compared to the company’s actual financial allocation and performance, giving an idea of how close predictions were to actual spend.

For example, imagine you allocated $10 million for your company’s annual corporate social responsibility (CSR) project. Unforeseen circumstances caused it to run $1 million over budget, and that money had to come out of other projects’ budgets.

During the project’s postmortem, you ask questions like, “Why did we run over budget? Was this an issue of inefficiency or misallocation?” When creating the budget for next year, you use those insights to tighten the process and keep the project’s spend at $10 million or more accurately allocate funds to other projects.

Types of Budgeting

There are several budgeting types that each prioritize different factors when approaching a financial plan. These include:

• Zero-based budgeting , which sets each item at zero dollars at the start of periods before reallocating
• Static budgeting or incremental-based budgeting , which uses historical data to add or subtract a percentage from the previous period to create the upcoming period’s budget
• Performance-based budgeting , which emphasizes the cash flow per unit of product or service
• Activity-based budgeting , which starts with the company’s goals and works backward to determine the cost of attaining them
• Value proposition budgeting , which assumes no line item should be included in the budget unless it directly provides value to the organization

The right budgeting type varies by company and situation. If your organization is in financial distress, the zero-based method may be the best fit, as it starts from scratch each period. Trying out several methods is a good way to determine which is ideal; when doing so, ensure your entire organization is aligned.

Related: 6 Budgeting Tips for Managers

Why Is Budgeting Important?

Budgeting involves number-crunching, attention to detail, and making informed decisions about fund allocation—but it’s well worth the effort. Here are five reasons budgeting is important in business.

1. It Ensures Resource Availability

At its core, budgeting’s primary function is to ensure an organization has enough resources to meet its goals. By planning financials in advance, you can determine which teams and initiatives require more resources and areas where you can cut back.

If, for instance, your team needs to hire an additional employee to scale efforts, budgeting for that in advance can allow you to plan other spending.

2. It Can Help Set and Report on Internal Goals

Budgeting for an upcoming period isn’t just about allocating spend; it’s also about determining how much revenue is needed to reach company goals.

You can use budgeting to set company-wide and team financial goals that align with them. This is especially prominent when using activity-based budgeting, but it’s beneficial no matter which type you use.

Financial goals should be attainable enough that you count on them to inform the rest of your budget allocations. Your goals inform the expenses needed to reach them and vice versa.

You can also use budgeting to update employees on progress and revisit the next period’s goals. For instance, if your company aimed to gain 10,000 new users this past year but fell short by 4,000, what could you have done differently? Does the initiative require fund redistribution? What resources could have propelled progress?

Tracking progress, or lack thereof, allows you to align your team and plan for growth in the next period.

3. It Helps Prioritize Projects

A byproduct of the budgeting process is that it requires prioritizing projects and initiatives. When prioritizing, consider the potential return on investment for each project, how each aligns with your company’s values, and the extent they could impact broader financial goals.

The value proposition budgeting method forces you to determine and explain each line item's value to your organization, which can be useful for prioritizing tasks and larger initiatives.

4. It Can Lead to Financing Opportunities

If you work at a startup or are considering seeking outside investors , it’s important to have documented budgetary information. When deciding whether to fund a company, investors highly value its current, past, and predicted financial performance.

Providing documents for previous periods with budgeted and actual spend can show your ability to handle a company’s finances, allocate funds, and pivot when appropriate. Some investors may ask for your current budget to see your predicted performance and priorities based on it.

5. It Provides a Pivotable Plan

A budget is a financial roadmap for the upcoming period; if all goes according to plan, it shows how much should be earned and spent on specific items.

Yet, the business world is anything but predictable. Circumstances outside your control can impact your revenue or cause priorities to change at a moment’s notice.

Consider the onset of the coronavirus (COVID-19) pandemic in 2020. The economic impact of travel bans, lockdowns, and other safety precautions was far-reaching and unexpected. Executives were forced to quickly—yet thoughtfully—rework budgets to account for major losses and newfound safety concerns.

More than two years later, executives are rethinking their budgeting procedures to make it easier to pivot if needed. One shift noted by McKinsey is the turn toward zero-based budgeting to determine the minimum resources necessary to survive as a business—should the circumstances call for it.

A budget gives you a plan; maintaining an agile mindset enables you to pivot that plan and help lead your organization through turbulent times.

Learn to Budget Effectively

Anyone can learn to budget effectively and reap the benefits. To build a foundation of financial literacy , gain a deeper understanding of the levers that impact an organization’s finances, and discover how budgeting can enable you to become a better leader and manager, consider taking an online financial accounting course .

Do you want to take your career to the next level? Explore Financial Accounting —one of three online courses comprising our Credential of Readiness (CORe) program —which teaches the key financial topics needed to understand business performance and potential. Not sure which course is right for you? Download our free flowchart .

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State budget should include tax credit to address school bus driver shortage

Transportation companies are finding it difficult to recruit and retain school bus drivers. Credit: Howard Schnapp

As the owner of a third-generation family-owned private transportation company providing essential school bus and transit services to Nassau and Suffolk counties, I am acutely aware of the labor challenges facing employers in our state. For our company, recruiting and retaining school bus drivers is of particular concern. The ongoing labor shortage, exacerbated by the COVID-19 pandemic, has made it increasingly difficult for businesses of all kinds to fill essential positions and meet the demands of our economy. That is why I am urging Gov. Kathy Hochul to support the $500 Work Opportunity Tax Credit included in the State Senate and Assembly's budget proposals.

The Work Opportunity Tax Credit is a valuable tool that will provide much-needed relief to employers like us as we navigate the complexities of the current job market. This tax credit, which mirrors the highly successful federal credit of the same name, offers financial incentives to businesses that hire individuals from targeted groups facing significant barriers to employment including veterans, individuals with disabilities, and those receiving government assistance. By offering a financial incentive to employers, the credit encourages businesses to hire from these underrepresented demographics, thereby expanding opportunities for all New Yorkers to participate in the workforce.

For our company, the Work Opportunity Tax Credit represents an opportunity to invest in our community while addressing our workforce needs. As a school transportation provider, we rely on skilled drivers, drivers assistants, mechanics and many other workers who help keep the yellow school bus the safest way to get to and from school each day. However, like many businesses across the state, we have faced challenges in recruiting and retaining qualified workers, particularly in specialized roles such as school bus drivers and mechanics.

This credit would enable us to attract new talent and invest in the training and development of our workforce, ensuring that we can continue to meet the needs of our school district customers and uphold our commitment to safety and efficiency. By providing financial support to offset the costs of recruitment and training, the tax credit would make it easier for us to compete for skilled workers in a competitive job market, ultimately strengthening our business and growing New York’s economy.

Moreover, the Work Opportunity Tax Credit has the potential to make a meaningful impact on targeted employee demographics, including veterans and individuals wanting to get off public assistance, who may face additional barriers to employment. By offering financial incentives to employers who hire from these groups, the credit encourages businesses to prioritize diversity and inclusion in their hiring practices, creating opportunities for individuals who may otherwise struggle to find meaningful employment.

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At its core, this tax credit is not just about supporting businesses; it is about supporting individuals and families across New York State. The Work Opportunity Tax Credit enables individuals to better support themselves and their families, improving their financial stability and quality of life. Additionally, by expanding access to employment opportunities, it contributes to New York's economic recovery, driving growth and prosperity for all.

As this year's budget session nears its conclusion, I respectfully urge Hochul, the Senate and Assembly to make sure the $500 Work Opportunity Tax Credit is included in the 2024-25 state budget. Together, we can build a stronger, more inclusive workforce and drive New York's economic recovery forward.

This guest essay reflects the views of John Corr, owner of Educational Bus Transportation in West Babylon.