You might remember cringing the first time you were encouraged to “make a budget”. You might have assumed that all fun was going to be sucked from your life, and then conveniently forgotten that it might be a smart “adult” thing to do. But when you make a budget you’re really giving yourself more freedom and less stress.
So how exactly do you make a budget? We’re going to walk you through, step by step.
How to Make a Budget
- Figure out exactly how much money you’re bringing in each month, after taxes.
- Go through your bank account history and account for each and every expense; be ruthless. Add them up and divide them into categories like: eating out, groceries, entertainment (yes, Netflix counts), rent, utilities, etc.
- Plug those numbers into a spreadsheet (like these). If you make your own, you want to make sure you start with your income, and then subtract all of the expenses you listed from that.
- Step back and appreciate your productivity.
- Take a hard look at where all your money is going. What percentage is going to pay for rent (ideally you want this to stay under 25% of your gross income). How much is going to pay for your entertainment and eating out?
- Set aside money for savings. I know it’s tough, but having an emergency savings account will go a long way to reducing your stress and giving you more freedom with your money.
- After you subtract non-negotiable things like rent, utilities, insurance, and hopefully savings, what’s important to you? Do you really like eating out or would you prefer to save that money and go to a movie every once in awhile? Do you need to drive to work every day or could you save money with public transportation or by riding your bike? Make sure you aren’t overspending on unnecessary things.
- Stick to it. At the end of each month, calculate what you spent your money on (remember, be ruthless) and plug the numbers into your spreadsheet. Did you overspend in some areas?
Now was that so hard? When you make a budget, you’re putting things in perspective and allowing yourself to be completely informed about where your money is going. You’re holding yourself accountable, and you’re allowing yourself to plan for the future.
In part 2 of our series, we’re going to talk about investing and life insurance.