9 Steps to Building a Budget

Nov 15, 2018 8:55:23 AM

There’s no doubt about it – building a budget can be overwhelming. While there are a million and one guides on how to get your spending under control, many of us struggle and simply don’t know where to start. The key? Take it step by step.

To help you become a budget-building master, check out this step-by-step guide. Follow each step in turn, and you’ll find that the process of budgeting isn’t as tough as it seems.

Step 1: Schedule a Time to Start

Yup – the first step to getting your budget in tip-top shape is simply scheduling a time to start. While it can be tempting to craft a much-needed budget plan in chunks, whenever you have a few minutes free, this can lead to piece-meal budgeting and plenty of frustration. Far more effective and long-lasting will be to make an appointment with yourself when you know you have time to spare. Schedule in at least half an hour, a few weeks from now, to give yourself time to complete some of the below steps.

Step 2: Get a Grip on Your Income

In order to build your budget, you need to know exactly where your finances are at the moment. This is no small task! At least a week before your make-my-budget kickoff date, start assembling records that show where your finances are at the moment. Check how much money is in your savings and checking accounts, and make sure you know your income; including what you’re taking in from tips or other odd jobs. And if you’ve lost your online banking password – find it!

Step 3: Figure Out Your Expenses

Another piece of key information to collect at this point is your expenses. Some of these will be set expenses you pay every month, such as rent, phone bill and student loan payments. Even if you’re pretty sure you know how much these cost, write them down anyway – building a budget is a whole lot easier with all the figures in front of you. And don’t forget about all those subscriptions! Netflix, Spotify, Amazon Prime and more are no doubt making a sizeable dent in your monthly spending.

Other expenses may shift from month to month, like utilities, grocery bills and all the other spending we do on a day-to-day basis. While it’s probably not possible to find a record of every latte you’ve purchased in the past year, what you can do is write down a list of the most common places you spend money as well as a few estimates on what these shifting costs might amount to in a month.

Step 4: Track Your Spending

Well done! With a handle on how much money you have, how much money you’re earning and approximately how much you’re spending every month, you are well on your way to building a budget. In fact, most of the hard work has already been done!

The next step is to track your spending – this is the only way to know for sure where your heard-earned cash is going, and how you can build a budget that helps you save more and spend less. Aim to track your spending for a full month. You might physically write down every time you spend – not forgetting about hidden spending from automated subscriptions! – or do it electronically with an app. Budgeting apps that enable manual input like Fudget and Wally can be especially useful at this point, because you don’t need to go through the hassle of linking the app to your bank account. Then again, if you tend to spend with a card for nearly everything, an app like Mint or BillGuard, that links to your account and automatically tracks spending, might be a good choice.

Step 5: Assess the Month

After your month of close financial tracking, you’re ready to build a budget for the future! Set yourself a date (see Step 1!), then sit down and add together similar expenses like takeout food, makeup purchases, home repair and so on; to take a close look at precisely where your money is going. You might be surprised! Often, small costs and impulse buys can really add up.

Step 6: Pick Out What to Cut

Using the spending tracker, plus information about your income, calculate what you’d like to be spending every month and what you can afford to save. Compare that to what you’ve spent, and see what can be cut. With all the numbers in front of you, this process will be much, much easier than simply waking up one day and saying, “I should really stop eating out so much.”

Step 7: Categorize Your Budget

Set a budget for each “area” of spending, for example transportation, groceries, going out with friends, and subscription entertainment. Of course, those big expenses like rent, car payments and loans will have their own budget too. Once you’ve completed this process, make a record of what your budget is for each area. Once again, keeping this information close at hand with an app is often the best way to go!

Step 8: Start Spending – and Keep Recording!

You budget has been built and you’re ready to start spending! But that doesn’t mean you can stop tracking what’s coming in and what’s going out. For the first month of your budget, pay close attention to where you’re spending and keep writing this down. With an app or even just some simple arithmetic with pen and paper, it will be easy to see how much you’re spending and to stop yourself if you’re close to going over budget.

Step 9: Keep At It

Budgeting is not a one-and-done activity – it’s a process that, when done well, can stick with you for a lifetime. Once you’ve mastered the basics, you’ll be well on your way to managing your finances like a pro and saving up for the really big stuff when it matters.

Tags: Money Tips, Debt Management, Budgeting