Create a Budget That Works for You [The Full Guide]

Do you want to create a budget?

That’s great, you’re already one step ahead of the game! Not many people create a budget, but everyone needs a budget.

Most people carry around a lot of financial stress, often centered around uncertainty and having debt. The uncertainty you can tackle with creating an emergency fund. Paying down your debt you can tackle with creating a budget.

A budget will help you improve your financial situation, regardless of where you stand now. If you’re rich or poor, having a budget can benefit you.

A budget helps you with paying off debt, reaching your financial goals, and it shows you in what area you can do better.

Budget-relating articles that can get you started:

• 5 Reasons Why You Need To Budget
• Pay Yourself First – Hacking Financial Freedom
• 5 Simple Steps to Check Your Financial Health

How To Create A Fail-Proof Budget That Works

Do you want to know how to create a budget that works? Here are 5 simple steps!

Step 1. Decide whether you want your budget electronic or on paper

Everyone has a personal preference whether they want to have their budget electronic or on paper. On an electronic version, you can easily make changes, but pencil and paper can be preferred by others.

Decide now which option you want to try out if you, later on, find out that you would rather choose the other option – that’s okay too. You can always switch! The most important thing is that you create a budget and stick to it.

Check out my free resource library to get my monthly budget printable, which you can use to create and track your monthly budget. The “Budget” column is what to budget to spend each month and the “Actual” column is what you actually spent each month. Doing this consistently each month will help you see what you need to work on!

Step 2. Track ALL Your Income And Expenses

Creating a realistic budget is important because you want to know exactly what is coming in and going out in a month. To do this, you need to gather all your receipts, bank transactions, credit card transactions, and more.

Another way to do it is to track everything for an entire month. Track every single transaction with a note telling you what you bought. At the end of the month, you can evaluate your spending.

I recommend you do this because it’s the absolute best way to create a realistic budget. You will finally see where your money is going! The results might be shocking, but don’t worry you can adjust what you will spend in each category.

As you can see where your money goes, you can see how much you should dedicate to each category in your budget. If you think that actual expenses are too high already, try cutting your budget for a month to see where you can save.

[Related Read: How I Live on Half My Income – and You Can Too!]

Step 3. Budget Your Income

The income that you have every money can come from various sources. It can include your income from your day job, side hustles, dividend, rental properties, and other passive income sources.

One thing to pay attention to: how often do you get paid? Some people get paid every four weeks, every two weeks, etc. How often you get paid influences the amount you make each month.

For variable income, be careful how much you take into your budget. You don’t want to incorporate passive income that varies per month, or bonuses that are not guaranteed. When you are not 100% certain that you will have the additional income, it’s best to not anticipate having it.

Let’s make your budget as realistic as possible!

Step 4. Budget Your Expenses

When making a budget, it’s important to look at actual expenses. It’s not enough to look at estimated expenses. Your estimations may be way off, taking realistic expenses is a much better way to get an accurate budget ASAP.

Things that you need to include in your budget, per category:

• Savings – Holiday savings, retirement fund, investments – put them aside first
• House – Mortgage payment, rent, maintenance, property taxes, insurance, utilities, etc
• Car – Car payment, gas, insurance, maintenance, etc.
• Food – Groceries, eating out – this is the most important category to add up as you often overspend without noticing
• Health insurance
• Television – Cable, Netflix, etc.
• Internet
• Phone plan

• Entertainment – Concert tickets, going out for drinks, basically anything you do outside of the house
• Clothing (when you’re not on a clothing ban)
• Gifts
• Charity
• Miscellaneous – Uncategorized items

Step 5. Change when needed

When you’re setting up a budget, it’s important that you are checking it regularly. I don’t mean every day, every week, or every month is more than enough – whatever floats your boat.

If have any significant changes in your income, expenses, or even your goals, your budget should be adjusted accordingly. This will make your budget as realistic as possible.

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This post was previously published on Radical FIRE and is republished on Medium.

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