A budget can help you and/or your family prioritize your income to ensure costs such as bills, childcare, student loans, and food can be paid on time and help you cultivate a savings account as well. There are 5 easy steps to create successful budget and can be molded to each unique person to fit your lifestyle.
Let’s begin with a definition, a budget is an estimate of income and expenditure for a set period. In layman’s terms, a budget is a plan for how you will spend your income over a set amount of time, typically created monthly. The 50/30/20 method can be applied to monthly budgets in which 50% of your income goes towards needs (bills, childcare, car payment etc.), 30% towards wants (movies, dinners out, new clothes etc.), and 20% goes towards savings and debt payment such as student loans.
Step 1: Identify your income
Identify how much you bring into the home monthly after taxes are taking into consideration. This is your starting point for how much you must spend on essential and nonessential items/services throughout the month. If your partner also contributes income, include that in your starting number as well.
Step 2: Track your spending
An easy way to track your spending is using the Notes app on your cell phone to quickly jot down any expenses you incur throughout the day. Bigger items such as car payments or a mortgage can be found on their respective bills, however these are unlikely to change significance from month to month.
Step 3: Set your goals!
Goals can include things like bills, childcare, new school clothes, etc. If you feel comfortable you can also set a goal for how much you would like to dedicate to your savings account each month to help build your safety net should you need it. The 50/30/20 method is great to apply to these goals and is easy to calculate based on the worksheet provided.
Step 4: Utilize this Worksheet to Create your Plan
The Federal Trade Commission has created this worksheet to help you create your budget. It will help you break down your income into categories such as Food, Transportation, and housing. From there, it will help you break your expenses down further looking at insurance, eating at restaurants, grocery spending, etc. Seeing all of this information in one place will allow you to see your finances in one big picture.
Step 5: Check in!
Check in with your completed worksheet every couple of weeks to see how on track you are. This is a great time to add and/or subtract expenses as the month goes on and to notice patterns of spending money you may be able to work on. These can be great goals to add for the next month as well while you work on transforming those patterns.
Budgeting is a learned skill that you can only get better at over time. If these steps seem overwhelming, start with one or two and work your way up to completing the worksheet and including more expenses. Don’t be discouraged if your budget is blown by week two of the month, and instead use that month as a starting point to examine where you need to adjust for the next month! As always, the Mary Rigg Neighborhood Center Financial Coaches are available for questions or additional help with understanding and creating a budget that fits your life. You can reach them by calling 317-639-6106.