How to make a budget really isn’t hard. With these easy steps, you will be well on your way to telling your money where it needs to go.
What Is A Budget?
A budget is a written plan for your money. Whether you use pen and paper, an app or you build your own excel spreadsheet, the important part is that you have a real plan, and you are working on that plan every month.
Different Types Of Budgets
There are several different types of budgets you can use to plan your monthly budget. Check out a few of the most commonly used budgets below. You can select one of these budgets to use or research a budget that you feel would work best for you.
50/30/20
50/30/20 is a percentage-based budget. 50% goes towards your income needs, 30% goes towards wants, and 20% goes towards savings. This is a rather straightforward budget but doesn’t leave a lot of room for eliminating debt. If you haven’t taken care of your debt, putting 20% of your income towards savings is going to feel like peddling backward.
60% Solution
The 60% solution budget is when you cover all your expenses and needs with 60% of your budget. So of course, you will need to establish a budget before you even start with all this math. The other 40% left is for savings. That 40% gets divided up into four savings categories.
- 10% for retirement
- 10% for long-term savings
- 10% for short-term savings
- 10% for fun or miscellaneous
I love to save, but again if you haven’t handled your debt, this may be a bit counterproductive to put 40% towards savings instead of eliminating debt.
Reverse Budgeting
This is exactly what it sounds like. It’s a budget done in reverse. So, instead of handling all your expenses first, you take care of savings and investing before tackling debt, home expenses, and miscellaneous items.
Again another budget that is focused on savings. This is great if you don’t have any debt draining your income out of your bank account.
Zero Based Budget
What is a Zero-Based Budget? No, it doesn’t mean you start from zero or will have no money at all. To be honest, I think it’s a thing of genius, but I am a little biased. It is as simple as taking your total income minus all your expenses until your total equals zero. It is quite literally that easy and puts every dollar in its place. You will never ask yourself, “where did all my money go?” because you will know where every dollar went.
My family uses a Zero Based Budget. So if you make 4,000 a month, you will take that minus all your expenses and debt, including what you put in savings, and keep on hand in cash until you get to zero.
Why A Budget
As you can see above, a budget doesn’t stop you from spending it actually gives you permission to spend. When you are following a budget, you feel in control of your money and know where you are financial at all times. This allows you to save money and eliminate debt as well as stay out of debt and make wise financial decisions. In other words, you control your money, and your money no longer has control over you.
We use the EveryDollar app to track our budget and love that it is always right there at our fingertips.
Start budgeting with EveryDollar today!
Know Your Expenses
To begin your budget, you must first know all your expenses. Gather all your monthly, quarterly, and annual bills and write them down. Don’t forget things like possible car repairs, gas, and of course entertainment. These can be expenses or part of your miscellaneous category. But I strongly suggest you have an assigned category for gas. Car and house repairs can come from your emergency savings, or you can have separate savings assigned just for them. You know you best so decide how you want to view these expenses on your budget.
Know Your Income
It’s important to know and understand your income streams. All forms of income need to be looked at, hourly, salaried, or commission-based. You need to know exactly what’s coming in monthly. Never assume always know your income. After all, it is the money you earned.
If you have a commission-based job, you will want to use a monthly average for your income. I would suggest calculating your monthly income average for a low and high-income month. Use the lower average to prepare your budget so that you are prepared for those not-so-great months when things may be tight.
Give It Three Months
Once you start your budget, give it at least three months to solve any problems. As You will find, you may need to adjust your budget over those few months until you get it just right.
You got this and are completely in control of your money. You get to tell it where to go and how it gets spent. With you in the driver set, you can eliminate debt, stay out of debt, and plan for your future. Save for large purchases without using a credit card or dipping into your emergency funds. Plan a vacation or purchase your first home. Your options are endless when you control your money, and it doesn’t control you.
Remember money is a tool; use it as such.
Christian Reflection
Money and greed are often the loudest and most appealing idols seeking to steal our attention. Paul declares that greed is idolatry and that to be greedy is to worship other gods (see Col. 3:5; Eph. 5:3).
Give me five minutes with a person’s checkbook, and I will tell you where their heart is.
Billy Graham
Other Resources
How To Manage Money Get Out Of Debt
The Total Money Makeover Audible Book
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