How to Budget in 6 Simple Steps


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Whether you want to have money left over at the end of the month, pay off debt or save more money budgeting is the start of the process. Our guide, along with additional workbooks and supporting resources, can help you budget your way out of money problems.

Published in: Economy & Finance, Business
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How to Budget in 6 Simple Steps

  1. 1. How to Budget In 6 Simple Steps
  2. 2. Table of Contents The Budgeting Process Set Your Goals List Your Income & Expenses Analyze Your Expenses Set Your Budget Manage Your Budget Revisit & Adjust 3 8 9 11 2 4
  3. 3. The Budgeting Process Creating a budget isn’t that difficult. It’s really about following a step by step process that includes information gathering and making some decisions along the way. There is no such thing as a right or wrong budget. 3
  4. 4. The Budgeting Process Our budgeting guide will walk you through the process – step by step – with additional resources to help you explore futher. Download the supporting budget worksheets – including goal setting, spending journals, budget tracking and more. 3
  5. 5. Set Your Goals Give yourself a reason to stay on track. Write down your financial goals whether they are paying off debt, saving for a new purchase or investing in your future. Writing down your goals is a powerful motivator that will keep you on track when the road gets a little bumpy. 7 Blog Article: 6 Reasons Why You Need A Budget
  6. 6. Set Your Goals Make sure that the goals you set are specific and measurable, so you can clearly see whether you are succeeding. You will also want to make both long-term and short-term goals. For example: • I want to pay off $20,000 in credit card debt within 3 years. 8 Blog Article: Budgeting With A Purpose
  7. 7. List Your Income & Expenses This is the foundation to your budget. You need to know exactly how much money is coming in and what you are spending your money on. Every dollar counts. For one month keep track of everything you spend money on. 9 Blog Article: How Much Do Your Daily Habits Cost? (calculator)
  8. 8. List Your Income & Expenses Gather the information you’ve collected from tracking your expenses, and compare it against what you are bringing in on a monthly basis. Remember to include ALL of your expenses. Divide annual payments by 12 to get the cost for one month, and also include debt payments and savings contributions. 10 Blog Article: Don’t Forget These Expenses (infographic)
  9. 9. List Your Income & Expenses You may, once you add it all up find you are spending more than you make. If you continue on this course, you will continue to add to your debt. 11 Blog Article: Change Your Spending Habits (infographic)
  10. 10. Analyze Your Expenses Next, allocate your spending into different categories: • Discretionary Expenses: These expenses are not necessary, like vacations, club memberships and a new pair of shoes. • Non-Discretionary Expenses: These are expenses that you cannot avoid like rent, loan payments and insurance. • Fixed Expenses: These cannot be changed monthly and include items like rent, child care and mortgage payments. • Variable Expenses: The amount you pay on these expenses varies month to month, like a phone bill, entertainment costs, and money spent on clothing. 12
  11. 11. Analyze Your Expenses Once you know how and where you are spending your money, you can look for ways to save. Start with the easiest costs to reduce – your discretionary, variable expenses – and work your way up through the expenses that are more difficult to cut back on, like your housing costs, loan payments, and transportation expenses. 13 Blog Article: Finding Ways To Reduce Your Spending (infographic)
  12. 12. Set Your Budget Here is where you set your future action plan. Identify ways to reduce expenses or earn more. Allocate your income to where you should be spending it, not where you have been spending it. 14 Blog Article: 5 Key Spending Ratios
  13. 13. Set Your Budget You are working to balance your budget to zero. That doesn’t mean you spend everything you make, it means you allocate every dollar you make to some purpose. So if you take home $2,000 you are going to allocate a total of $2,000 to spending, debt repayment and savings. If you want to pay off your debt sooner, you need to spend less. 15 Blog Article: The Budgeting Equation
  14. 14. Manage Your Budget Once you’ve set your budget, you must stick to it! The only way to do so is to track your results. Record your income and expenses each and every month and compare them to your budget. If you’re overspending in some categories, make adjustments. 16 Blog Article: Tracking Your Expenses
  15. 15. Manage Your Budget Here are some tips that can help you stay on budget: • Avoid Temptation: If you are an impulse shopper, leave your credit cards at home. It’s hard to blow your budget when you only have a finite amount of cash on hand. • Use the Envelope System: Withdraw the money you have budgeted for daily living on your payday, and allocate the cash into different envelopes for your groceries, entertainment, personal items etc. • Don’t Count on Windfalls: If your income tends to vary, make any estimates on the low side. Don’t count on your bonuses, tax refunds or other unreliable sources of cash. 17
  16. 16. Revisit & Adjust A good budget, one that you will stick with, should never be cast in stone. Budgets should be flexible. Life changes as do your priorities. You need to give yourself some flexibility to make adjustments, to deal with the unexpected, and sometimes to fail. 18 Blog Article: Why Budgets Fail (infographic)
  17. 17. Revisit & Adjust Budgeting in a circle allows you to revisit your goals and priorities. These are likely going to change as you solve your money problems and move on to the next stage on your way to financial freedom. 19
  18. 18. Learn how to budget your way out of money problems. Download our FREE eBook