Having a good budget that’s easy to stick to can be key to achieving your financial goals. Here are some tips for getting started:
Figure Out How Much Money You Have Coming in Monthly
The first step toward creating a successful budget is assessing exactly how much income you have each month. Whether you get paid weekly or bimonthly, knowing the total amount coming into your bank account will allow you to make better decisions about where it should go.
If your income varies—for example if you are self-employed and your workload changes often, or if you sometimes make a lot of overtime pay—you may want to come up with an average monthly number or decide to modify your budget every month based on income.
Look at Your Fixed and Variable Expenses
Once you know how much money you have coming in, the next step is to look at your fixed and variable expenses. Fixed expenses are things like rent or mortgage payments, car payments, internet costs, phone bills, or life insurance (such as monthly term life insurance payments)—anything that stays the same each month.
Variable expenses, such as groceries and certain utilities, can change monthly. Knowing the total costs in both categories will help you determine where your money should be allocated.
Consider How Much You Want to Save or Put Toward Paying Off Debt
Creating a budget isn’t just about spending money—it’s also about saving and investing in your future. Decide how much you want to save every month, whether it’s a dollar amount or a percentage of your total income.
This money can go into a savings account or retirement fund. You can also use it to pay down debt, such as student loans or credit card bills.
Consider Disposable Income
It’s important to leave money for fun stuff, like going out and taking a vacation. Once you’ve accounted for essential expenses and set a savings goal, consider how much money you have left over for fun purchases like going out to eat or attending concerts.
Think about whether this is a realistic number for you. If it’s not, consider what other parts of your budget you can adjust.
Figure Out Where You Can Make Cuts
Sometimes you can cut things you’re no longer using to free up cash for something you enjoy more. This might mean looking closely at your expenses and seeing what you wouldn’t mind giving up. Maybe you can bring lunch to work twice a week or cancel a clothing subscription service you aren’t enjoying anymore.
Decide on a Budgeting Method That Works for You
Once you understand how much money you have and where it’s going, it’s time to figure out what type of budgeting system will work best for your lifestyle.
Many new budgeters find the 50/30/20 method useful—this means allocating 50% of your income to needs, 30% to wants, and 20% to savings or debt repayment. Experiment with different budgeting methods until you find one that works for you.
Budgets Can Change
A budget isn’t set in stone. After the first month, figure out what’s working and what isn’t. Your budget will change over time along with your priorities and income.
Be prepared to adjust when needed—checking in periodically can help you stay on track and meet your financial goals.