The “B” word (we’re talking B for budget) is often this thing we know we should be doing, but many of us may not know where to start…so we don’t. Some months (or even pay periods) we’re just hoping that our spending and expenses don’t go beyond our income. Sometimes we get lucky, and sometimes we use credit. That cycle stops now.
My advice if you’ve never created a budget before is to use your previous month’s income as a template, which you can access via your bank statements. That way you don’t have to wait another full month to get started. This post will give you six tips for beginning budgeting to help you get your personal finances in order so you won’t have to keep sweating it the four days before payday.
- Add up your monthly income.
If you have variable or inconsistent amounts of income coming in, this may be a little more challenging…this is why using last month’s expenses for the basis of your budget is helpful. If you’re a salaried employee and receive about the same income each paycheck, you’ll know what to expect before you receive your check. Regardless, list all monthly income coming in…including income from your side hustles if you have one. Your total money coming in is how much you have for expenses.
2. Write down the days you will be paid for the month.
This will be helpful for number four below. What this does is allow you to see when you will be paid so you can identify how your budget will flux with your bill cycle. If you work side hustles or have pop-up or unexpected jobs), the same rule applies.
3. List out all your expected monthly expenses.
Okay, this is where it can get tricky. My iced coffee is an expected expense, but it’s not a necessary expense (but can it be, please?). Necessary expenses are the expenses it takes to maintain your household. Necessary expenses include things like rent, utilities (electricity, gas, water, trash, sewer, etc.), Internet if your job depends on it, student loan payments, credit card payments, groceries, toiletries, and cell phone bills. These are expenses you know you have to pay each month, so these expenses need to go into your budget.
4. List these expected monthly expenses and organize them by due date.
I know, so many details. I wouldn’t advise looking at your bank statements for actual due dates because we usually set specific days to pay the bills we don’t already have on autopay, or we wait to pay them until we have the money to do so. This is an important step that all too often gets left out of the budgeting process, but it’s a really important step for staying ahead and knowing where you can divert funds to other financial goals or personal spending once you’ve mastered your budget.
For example, here’s a list of my due dates:
1st — Rent
1st — Netflix
13th — Phone
17th — Student Loan Payment
19th — Life Insurance payment
20th — Internet
22nd — Sewer Bill
24th — Credit Card Payment (if applicable)
26th — Water Bill
27th — Gas Bill
That seems a little more manageable, right? Or maybe it seems overwhelming because now you can see that most expenses (at least in my own budget) are at the very end or the very beginning of the month. What listing out your bills by their due date does is provide you with a guide for the times of the month that your money will go toward expenses and that “broke four days before payday cycle” can improve. Just because you have an “extra” $300 after the first paycheck’s bills are paid and the groceries are purchased doesn’t mean this is money to spend. Any “extra” money you have in your budget is applied to the next pay period’s expenses. Maybe you don’t have an extra $300 floating around…maybe it’s more like $50. That $50 is your water bill. Every dollar matters when it comes to budgeting, so treat that extra money like you need it.
Pro-tip: if your due dates are overwhelmingly close together like mine are, you can negotiate for a new due date with your utility companies, credit card providers, and student loan providers so your expenses can be more evenly distributed throughout the month.
5. Add up your discretionary spending.
Discretionary spending includes expenses that can be cut from the budget if you need more money for your expected and necessary expenses in your budget. Discretionary expenses include things like cable (who has cable anymore?), streaming services, going out to eat with the crew, and your entertainment budget. My iced coffee mentioned above? It’s a discretionary expense. You don’t have to do without these things, but you do have to know how much of your money is going toward them.
6. Compare your money coming in with your money going out.
Here’s where we do some quick math. That number you got from adding up your income for the month (from #1)? You’re going to subtract your expected or necessary expenses (from #3) from that number. Say you or your household has a monthly income of $2000 after taxes. If your necessary expenses are $1600, you have $400 of wiggle room for the entire month (this will not be spread evenly per pay period—see #4). Next, you’ll subtract your discretionary expenses from your budget. Even with these expenses added in, hopefully your income is still higher than all your expenses. If it’s not, it’s time to cut your discretionary spending or find ways to increase your income.
Gaining control over how you manage your money and decrease the “extra” spending so that you’re living within or even slightly below your means is the first step toward reaching your financial goals and becoming less dependent on your credit card lender and more in control of your own paycheck. If you’ve made it this far and followed the steps, you successfully just created a budget. Congratulations! What’s something you spent more money on than you realized? Did you learn any ways you could cut costs to save more money? Tell me in the comments! My next post will discuss the what an emergency fund is and why it’s important to have one. Subscribe so you won’t miss a thing.