Becoming an adult is hard. You have to start paying for bills, managing your finances, bringing in an income, and so much more, all while juggling your crazy life! Well, one of the best ways to manage adulating is creating and sticking to a budget. Budgeting is one of those life skills everyone has to master at one point or another. Why not master it now? Well, this budgeting 101 post will walk you through all of the steps you need to take on creating your first (or new and improved) budget that will lead you to future financial success! Ready? Let’s get into it!
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What is a Budget?
When it comes to personal finances, a budget is a set plan for your money and contains a list of categories that are assigned specific spending limits. For example, you could create a monthly budget that has four categories: rent ($1000), groceries ($200), utilities ($150), and play money ($50). Then, throughout the month, you track your spending to ensure you do not go over each limit.
For a much more detailed overview on budgeting, check out Dave Ramsey’s Total Money Makeover. It completely changed my financial life and I swear by it!
Why are budgets important?
Budgets are important for countless reasons. First, because you are creating a personal spending plan, you are telling your money where to go each month. This allows you to ensure that you have enough money throughout each year. This can also help you get out out of debt and create a strong savings account. No matter your income level, a budget will assist your finances in countless ways.
Budgeting 101: How to create a successful budget
If you’re creating your very first budget, it may take some time. But don’t allow that to deter you. This process will become easier as you go and, in the long run, will save you thousands each year. But, how do you get started? Well, just follow the steps I have outlined below and you will be well on your way to success!
Step One: Decide on your Budget Time Frame
The first step in creating a successful budget is to decide on your budget time frame. This is a set amount of time you specifically assign to yourself that will allow you to evaluate your budget in smaller chunks throughout the year. For this, you have many options:
- Daily
- Weekly
- Bi-Monthly
- Monthly (I highly encourage you to use a monthly budget!)
- Every-other-Month
- Yearly
- Etc.
Popular choices are usually bi-weekly (per-paycheck) or monthly. This allows you enough time to actually spend money in each category you set (we will go over that in a second) and bring in some income to cover those expenses.
Note: Examples throughout the rest of these steps will be using a monthly budget time frame.
Related: Organize Your Life with the Only Student Printable Planner You’ll Ever Need in School
Step Two: Evaluate your Income
Now, evaluate all of your sources of income that you will receive within this time frame. For example, for a monthly budget, you would add up your total income for the month. If you are unsure, go through your previous bank statements and take the average for the last few months.
Example sources of income:
- Salary/pay checks from work
- Side hustle income (like blogging)
- Scholarship money
- Student loans
If your work is seasonal, you might find it more helpful to go over the last year’s worth of income and set a unique income value for every month. For example, students who work more hours over breaks. Also, be sure to add up everyone’s income in your family if you are paying for your expenses together.
Tip: Be sure to take out any taxes, social security, insurance, or other money that comes out of your paycheck at work before using it for your budget. Here we are just focusing on the money you will actually be putting into your account.
Related: 21 Legit Ways to Make a TON of Extra Cash
Step Three: Create your Categories
Now let’s focus on your expenses. Over the month, how are you regularly spending your money? Create a complete list of every single category you can think of that you might be using.
Example categories:
- Rent
- Internet/cable
- Streaming services (Netflix, Hulu, etc.)
- Water/sewer/garbage
- Electricity/gas
- Groceries
- Gas/travel expenses
- Car repairs
- College expenses (textbooks, school supplies, etc.)
- Pets (pet food, medicine, toys, etc.)
- Health and wellness (doctor visits, dentist appointments, prescriptions, etc.)
- Home necessities (cleaning supplies, toilet paper, paper towels, etc.)
- Play money (movie tickets, concert tickets, etc.)
- Yearly expenses (college tuition, car tabs, new tires, Amazon Prime membership, etc.)
- Debt payments
- Savings
Tip: Be sure to include a “yearly expenses” category and try to think of as many expenses as you can. Then, go through each month and assign unique amounts for each. These expenses may include: car tabs, college tuition, one-time fees, new tires, yearly membership fees, or a down payment on a new vehicle.
Snag your free budget planner to start creating your budget today!
Step Four: Add any additional Debt Payments or Savings Plans
If you have any debts, be sure to add this to your categories. Furthermore, be sure to have a savings category. You may not be able to add any money into it now, but having it there will remind you later on.
Step Five: Assign Spending Limits to each Category
Go through each of your specific categories and assign a spending limit based on your time frame. This may be easiest (and more realistic) to do if you print out your bank statements over the last few months and tally up how much you actually spent in each category.
There are a few things you might want to take into account here. For example, let’s say you only go grocery shopping on Saturdays. Be sure to take into account how many Saturdays there are during your time frame. If you’re doing a monthly budget, notice that some months have five Saturdays, while others have four. The months with five Saturdays will need more money budgeted.
Tip: If you have more than one bank account (even if you don’t use it often), be sure to check your spending there too! The more accurate your numbers are, the better off you will be.
Don’t forget to download your free budget printable to create your very own budget!
Step Six: Total your Expenses and Income
Now total up all of your expenses and all of your income values for your time period. For example, for monthly budgets, calculate a total expense and income value for each month over the entire year.
Finally, create a total for the year for both your expenses and income.
Tip: Download my free printable to make this 10 times easier!
Related: 57 Insane Money Saving Tips to Ensure You Meet Your Financial Goals
Step Seven: Balance your Budget
Now, for every time period, subtract your expenses from your income. If the value is positive for EACH budget throughout the year, move on to the next step, (but be sure to consider adding money to your savings each month).
If the value is negative for any of the time periods, you will need to do a bit of planning in two main ways:
First: If your yearly income is larger than your yearly expenses, move some money around to ensure you are covered each month. For example, for tuition payments, you could get onto a payment plan to help spread out the cost.
Second: If your yearly income is lower than your yearly expenses, this is a good indication you need to increase your income and/or decrease your expenses.
Tips for increasing your income:
- Apply for scholarships
- Apply for student loans (last case scenario)
- Create a side hustle
- Pick up an extra job
- Ask for a raise
Interested in starting a blog? Check out this free 5-day blogging crash course!
Tips for decreasing your expenses:
- Research ways to save money
- Begin clipping coupons
- Begin meal prepping
- Move into cheaper housing
- Get a roommate
Related: The Ultimate Guide to Saving Money in College
Step Eight: Create a Spending Tracking System that Works for You
Once you have a successful spending plan (where you to have positive values for each month), create a unique budget tracking system that allows you to ensure you are staying within your spending limits. Examples include a check register, totaling your expenses daily in a spreadsheet, or using budget planners.
Tip: Download my free budget planner to help keep track of your spending!
Step Nine: Create a Routine
Now that you have decided on your tracking system, create your own personalized routine that will ensure that you are frequently evaluating your expenses and staying on track. Be sure to write down your routine and add it to your to do list!
For example, here is my personal expenses routine:
- Weekly: Fill out spending tracker by reading off each expense in my bank account for the last week.
- Weekly: Tally up how much I have spent in each category to see how much I still have left for the month.
- Monthly: Add up my expenses and income for the month and plug it into my monthly budget sheet.
- Monthly: Evaluate how the last month went, is there anything I need to change? Increase income? Decrease expenses?
- Monthly: Evaluate debt and savings plans, am I still on track?
- Quarterly: Track all tax related paperwork for the last three months (this will help when tax season inevitably rolls around again). This includes making sure I have all my textbook receipts, donation receipts, pay stubs, tuition bills, etc. all collected into one file.
- Yearly: Complete a yearly budget review (see next step).
Related: The Ultimate Monthly Budget Review Checklist
Step Ten: Evaluate budget at end of year
Finally, make sure to complete a full yearly budget review and to setup your budgets for the next year. Below, I have outlined my yearly budget review to give you some ideas of what might work for you:
- Total up all expense and income totals for the year (mainly for reference)
- Create a completely new budget for the next year (re-do steps 1-9 for next year)
- Identify any major areas where I overly spent and decide if this category needs to be increased for next year
- Identify any areas where I under spend and if I can decrease the budget in this category for next year
- Add up all tax related documents and create an attack plan to file taxes for the year (and file the FAFSA if I haven’t already)
- Give myself pat on the back for making it through another great year
Extra Tips for College Students:
As college students, we have the unlucky fate of having to pay an outrageous amount for tuition while having little time to create an income for ourselves. Furthermore, our expenses are strange and mainly only occur a few times a year (aka paying tuition and fees). Here are some extra budgeting tips for all you students out there:
- Check out my top tips for saving money in college, you might find something that will change your life! (Or at least your bank account…)
- Take advantage of scholarship opportunities, you won’t find any other time in your life where people are actively trying to give you money!
- Apply for/accept student loans as a last resort. You end up paying SO much more for them in the long run…
- Boost your income by creating a blog, there are so many great benefits!
- Print off and keep all of your college expense receipts. In the US, these are tax deductible!
Finally, there are a few ways to incorporate your tuition and fees into your budget:
- If your financial aid/scholarships/loans at your university will be MORE than your tuition, you could simply not add tuition at all, and just add the left over money as your income.
- Add tuition/fees into your yearly expenses, and make a plan to pay for it all in one lump sum.
- Add tuition/fees into your monthly expenses, and get onto a payment plan with your university to spread out the bill.
Related: Why You Should Start a Blog in College (+ How it Can Pay for Your Tuition!)
Tips for Debt Repayment:
The awful truth is that many people have debt. Unfortunately, the longer you are in debt, the more money you will end up giving to it. However, there are plenary of ways you can manage your debt and one of the best ways I have found is the debt-snowball method. This is a brilliant technique created by Dave Ramsey (money genius) that assists you in getting completely out of debt and, eventually, investing your money into much more productive ways. Even if you aren’t currently paying on your debt now (hello students…), might as well learn about how to get in to the mindset of how to do it…
Check out Dave Ramsey’s The Total Money Makeover Book!
Tips for Saving for Large Purchases:
Large purchases, and I’m talking houses, cars, private jets (yeah I wish…), are best bought in cash. However, that is not realistic for most people. Instead, start thinking about your large purchases far in advance and create a savings plan to be able to have the best down payment possible when the time comes. Here, you can simply just add a savings category for your expenses, such as “House Down Payment Savings,” or something similar.
For more great tips on large purchases, check out Dave Ramsey’s book. I’m telling you, it changed my life and I hope you find it useful too!
Further Reading:
Looking for some more great money-related resources? Check out these other great blog posts:
- A Complete Beginners Guide to Frugal Living
- How to Set Up a Successful Budget for the Holidays
- The Ultimate Monthly Budget Review Checklist
- 21 Easy and Legit Ways to Make Extra Money
- 12 Secrets to Winning Scholarships (Easy Ways to Pay for College!)
- 57 Insane Money Saving Tips to Ensure You Reach Your Financial Goals
There you have it, my complete budgeting 101 overview. I hope you have learned some great tips and have already began creating your very own budget. Remember, the key to success is sticking to your budget and regular check-ins. Hopefully, you have seen how easy budgeting really is and I know you will see a big difference in your finances. Good luck and happy budgeting!
Don’t forget your free budget planner to get you started on your budget today!
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