5 steps to a better budget
If you haven’t budgeted before, or if it’s been awhile since you last tracked your spending, there’s no better time than the present. You can start building a budget in less than 30 minutes — and it’ll only take a few months to develop a good understanding of your spending habits. From there, you can find ways to trim your spending and devote some of your income to savings every month.
When you’re ready, download our PDF and use these five steps to get started.
1. Estimate your monthly income and expenses
Collect your last month’s pay stubs and bills to create a list of your income and regular expenses. You can also review your bank account and credit card statements to help estimate spending for the previous month. At this point, you don’t need to get your budget perfect, but try to estimate as closely as possible.
2. Carefully track spending for a few months
Collect all receipts from your spending, and continue this practice for at least a few months. This will give you a better sense of how you spend your money. Your spending habits can fluctuate over time, so tracking how you spend for at least three months will help you create a more accurate budget overall.
3. Make a plan for your savings
As you’re working on your monthly budget, it’s a great time to also think about your future. How much will you need for planned expenses such as clothes, school supplies, or household maintenance? Are you planning a vacation? Are you building your retirement savings? Defining your goals now – and how much you want to save for them – will help you understand how much you need to trim your spending to reach those goals. Read more about saving for multiple goals.
4. Find ways to trim your budget
Once you have a good sense of your spending habits and your savings goals, it becomes easier to find ways to trim your spending. Perhaps it’s choosing to eat out less frequently, or maybe you can find creative ways to spend less on groceries. Either way, once you find places in your budget where you can save, you can then open a new savings account dedicated to one of your goals. Even better, set up pre-authorized transfers into that account, and you’ll never have to think about saving.
5. Make room for emotions
There is no question that budgeting can be emotionally challenging for some people. While some find it satisfying to have every hard-earned dollar accounted for, others may find it helpful to set aside a “fun fund”, money they can spend freely without affecting their current needs and future goals. There’s no right answer, but ensuring you manage the emotional side of budgeting is a great way to keep at it for the long-term.
Creating a budget is one thing. Keeping it up-to-date is also very important. As your income fluctuates, or if you have new expenses, be sure to track those changes and keep your budget up-to-date. We recommend checking in on your budget at least two times a year, or whenever there’s a change to your income or spending habits.
Ready to get started?