So you want to build a budget? It may be that you’ve never tried to build a budget before, or you’ve tried and failed in the past. I’ve got 5 steps that will help you build your best streamlined budget.
I am all for using an app like Mvelopes to build your budget and manage your personal finances. But here’s the thing, nothing they do is revolutionary. Budgeting apps and tools make it easier to manage your money. The real work is budget thinking. You can get started building a budget before you use one of these apps. It will make things easier.
I suggest you use:
- Spreadsheet Software
- Two previous bank statements
- Two months of recent credit card bills
1) Log Your Income
Create a section in your spreadsheet for Income. Search your bank statements for income and use those as your guide. Name each check in one column, indicate when you’ll receive it by in the next, and then the estimated amount you’ll receive.
Taking note of when you’ll receive your money helps you know when you should set aside money for your big expenditures – like rent.
2) Log Your Mandatory Expenses
Your first priority when making a budget should be all the things you cannot default on. These kinds of expenditures are not optional and you MUST pay this amount. This includes: rent, utilities, cable/internet, minimum credit payments. This section also includes personal priorities such as giving or savings.
3) Prioritize Your Discretionary Expenses
You’re about to figure out how much money you have monthly to spend on things you want and need. calculate how much money you have as discretionary income by subtracting your mandatory expenses from your income. Then list your discretionary purchases. You can give them a number value and sort them by significance too.
Determine how significant each of these categories are to you. Software subscriptions may be more important than a Netflix subscription. (To each his own)
This could be a category of purchases such as gas, or a particular seller like your pharmacy. To calculate a category of expenditures like groceries, add together all of the purchases for the month. Then average the last two months together. Don’t forget to check your bank statement and credit card statements for reoccurring expenses.
4) Make The Cuts
Are there some areas where you are spending more than you thought you would? Order your discretionary expenditures by significance. Starting at the least important ones, determine if you can make cut backs, and how. You may even have found a subscription service you haven’t been using often on your card. If you don’t use It, cut it!
Also determine whether your discretionary expenses exceed your income. If they do, you have to make cuts. So far we’ve analyzed how you have spent your money in the past. It’s time to start deciding how you will spend it in the future.
This step is where most budgeting fails. I've beent there myself. You have to commit to making your expenditures less than your income if you want stable finances.
5) Plan Your Purchasing
Use your schedule of dates from your first two sections (income and mandatory expenditures) to determine when you make your payments. Try to spread your larger expenses, like rent or even insurance payments across multiple paychecks. You can use a portion of each paycheck to cover the expenses that are due at about that time. This way you won’t end up living on ice and breadcrumbs for one half of the month when the rent gets paid.
If you decide you want to use Mvelopes or some other money management app to manage your money, this spreadsheet will help you get started. You would have done half of the challenging work of figuring out when and where your income comes in and when and where your money goes out.