Creating a budget is one of the most important financial steps that most people overlook. It is a powerful tool that allows you to have control over your money and make informed decisions about your spending. In this blog, we will provide you with a step-by-step tutorial on how to create a budget and take control of your financial life.
Step 1: Get Set Up
Before you start creating your budget, you need to gather all the necessary materials. This includes gathering all your statements from the past month, such as bank statements, credit card statements, and debt statements. These statements will give you a clear picture of where your money is going.
Next, open the free budget spreadsheet that we have provided in the description. This spreadsheet will be your guide to inputting all your expenses for the month. You can easily make a copy of the spreadsheet by going to “File” and selecting “Make a copy”. Your budget will be built around this worksheet.
Step 2: Track Your Expenses
Once you are all set up, it’s time to start tracking and recording all your expenses from the past month. This might take some time, but it is crucial in order to gain a complete understanding of your financial situation.
In the spreadsheet, you will find several columns that you need to fill out. The first column is the date, where you simply put the date of the purchase. The second column is the expense, where you record what you purchased. The third column is the expense category, where you categorize the expense from a dropdown list. The fourth column is the spending type, where you identify whether the expense is fixed or variable. The fifth column is for categorizing the expense as a need or a want. And finally, the last column is for the amount spent on the item or service.
Take your time to go through all your statements and fill out this chart. This will give you a detailed look into your finances and help you create a successful and sustainable budget.
Step 3: Subtract Spending from Income
The key to a successful budget is spending less than you earn. In this step, you will subtract your spending from your income to determine if your budget is sustainable.
In the budget breakdown tab of the spreadsheet, enter your after-tax monthly income. The spreadsheet will automatically calculate your income and spending based on the information you inputted in the previous steps. The remaining amount after spending should ideally be positive. If it is negative, it means that you are spending more than you earn, and adjustments need to be made to your budget.
Step 4: Analyze Your Expenses
If your budget is not sustainable, it is time to analyze your expenses and figure out where you can make changes. Start by looking at your “wants” and “needs” spending. Filter out your wants and see if there are any areas where you can cut back, such as eating out at restaurants or canceling subscription services.
Next, analyze your variable expenses, such as groceries, gas, and eating out. Look for areas where you can reduce or eliminate these expenses. Record these potential savings in the budget breakdown tab of the spreadsheet.
Finally, take a look at your fixed expenses, such as rent and car payments. While these expenses are harder to change, there may still be opportunities to lower them. Record any potential savings in the budget breakdown tab.
By analyzing your expenses and making necessary adjustments, you can create a more sustainable budget.
Step 5: Create Saving Goals
Once you have a sustainable budget, you can use the extra money to create financial goals. These goals will help guide your saving and spending habits.
In the savings goals tab of the spreadsheet, write down your financial goals. Common goals include building an emergency fund or maxing out a retirement account. Determine what you need to do to achieve these goals and record them in the chart provided.
Having clear financial goals will keep you motivated and focused on your long-term financial success.
Step 6: Constantly Revisit and Revise
Creating a budget is not a one-time task. It requires ongoing attention and adjustments as your income and expenses change over time.
Regularly revisit your budget to ensure that you are still spending less than you earn. Make necessary revisions as needed to stay on track with your financial goals. Remember, a successful and sustainable budget is a powerful tool that can help you take control of your financial life.
A budget’s creation is an essential first step toward financial success. It allows you to have a clear understanding of your income and expenses, make informed decisions, and work towards your financial goals. By following the step-by-step tutorial provided in this blog, you can create a successful and sustainable budget that will empower you to take control of your financial life.