Steps to Creating a Budget

The most common reason that people do not create a personal budget is because of the many questions to consider. How much should I save? What is a good amount to allocate to expenses? Do I get to have money for fun and activities? With all of these questions in mind let?s walk through the basic steps of creating a personal budget and create solutions to all of YOUR questions. All you will need to complete your budget is a notebook, calculator, pen, and an open mind!

Step 1
Create a Spending Plan for yourself. Using the Spending Plan Worksheet (this link will open another window)write down your anticipated expenses, income, and savings plan. If this is your first time creating a spending plan use estimated guesses as to what you typically spend on each area.

Spending guideline percentages  (this link will open another window) may be useful as you examine your spending habits. These figures are from the Department of Labor Consumer Expenditure Survey and are meant solely for comparison purposes ONLY. You are encouraged to identify your priorities and adjust your percentages accordingly.

Step 2
Create a list of your monthly expenses using the Regular Monthly Expenses and Variable Expenses Worksheet. Include items such as:

  Housing
  Food
  Transportation
  Utilities
  Entertainment

The best step to take at this stage of creating your budget is to track your spending for a month. Each night take a couple of minutes to write down your expenses for the day. This will give you an accurate representation of how you actually spend your money versus how you anticipated spending your money.

Step 3
Income vs. Expenses
Does your income cover your fixed and variable expenses? How can you adjust your expenses to fit your budget? Depending on the amount of shortfall, it may be as easy as reducing the number of times you eat out or get coffee each month, your entertainment, or clothes you buy. If the shortfall is large, you may want to consider downsizing your vehicle, living arrangements, or lifestyle expenditures. 

If your income covers all of your expenses then this may be a good opportunity to tighten up your spending habits and consider saving more money on a monthly basis. 

Step 4
Consider, Reconsider, and Revisit
Creating a budget is not a one time deal. Reconsider your spending amounts on a monthly basis and revisit your goals. Add other categories to your budget if necessary. Savings is an area that is often over looked.

Why do you spend money the way you do? To understand more about your spending decisions and values complete a quick activity.