How do we create a budget?

 

 

So now that we know what a budget is, lets talk about how we create one. As we mentioned before, its about knowing the right "ingredients". It goes back to our example from Alex what are we bringing in to the bank (income) and what needs to go out (expenses).

 

 

Here are some steps from the Oklahoma College Assistance Program to help us get started:

 

The first step to creating a livable budget is tracking your spending. For at least a month, write down everything you spend, even small purchases like a soda or pack of gum. At the end of the month, you’ll be able to see some specific spending habits form like how much you spend on entertainment, fuel for your car or extracurricular activities at school. These habits are how you form your budget categories. Basically, everything you spend money on should have a category.

 

 

Next, identify your income. This is any money you have coming in, like paychecks, tips and even birthday money. It’s important to have a realistic picture of what you have to work with so you can take care of your needs and wants. If your monthly income varies, budgeting may be a little more challenging, but not impossible. Consider budgeting based on your average paycheck. To do this, take your last three paystubs, add them together and then divide by three. This gives you an estimate of what you make and you can budget based on that. Or, if you’d rather, you can budget based on the least amount you’re likely to bring home. Then anything above that gives you more flexibility to put money in savings to help you reach your goals.

 

 

Now that you know what you’re working with, it’s time to plan for your expenses. There are two types of expenses, fixed and variable. Fixed expenses are easy to plan for because the amount is always the same, like your car or insurance payments. Variable expenses are a little harder to plan for because the amount changes, like fuel for your car or extracurricular expenses. That’s why tracking your expenses is so important; it’s how you come up with a fairly accurate estimate of what you actually spend on certain expenses over time. Some expenses don’t happen every month. To plan for these, take the amount due and divide it by the number of months you have to save for it. For instance, if you pay your car insurance twice a year, divide the amount due by six, then put that amount in a savings account. This way when the bill is due, the money is there and ready to go.

 

 

Remember this, no one cares about your money more than you do. So its important that you treat it with the care that it deserves.

To help gather our thoughts, lets think about these questions as we create a budget.

 

How much money do I make per month? Per week?

What do I need to pay for every month? What are my obligations?

Is there something I am saving for? Something I really need or want?

What do I usually spend my money on?

What categories are most important to me and must be included on my expenses?

 

Once you have the answers to these questions, you are ready to create your budget and plot out your finacial strategy for success.

 

 

 

Like the idea of a budget line item for saving? Click here to move to the last module and learn how to save your money.