How to Build Your First Budget
Budgeting is the difference between living from paycheck-to-paycheck and have an emergency fund or growing financially for retirement.
Although it can be a tough and sometimes scary topic, don’t be afraid! We all start somewhere and today we will break down the steps to creating a budget (it’s always bound to change later) and gain confidence when it comes to money.
The Beginner's Guide to Budgeting
We are not all the same which means our financial practices will not be the same.
Let’s get into the topic at hand: budgeting.
This doesn’t have to be complicated. Here’s your guide to budgeting that will go over where to start and how to create a budget that works for you.
Step 1: Print out statements
If you have never printed out your spending statements or generally ignored your transaction history, now is the time to change that. Just like a doctor can’t diagnose you just by looking at you (well, most of the time), you can’t diagnose your financial situation without digging into how you’re currently spending your money.
If you are someone who is pretty consistant in your purchase history, print the past 3-6 months out and see the similarities/differences. If you have NEVER paid attention, print out 7-12 months out and see if there’s something worth noting. Example: If your entertainment goes up during the summer – how much is being spent compared to fall or winter? Circle trends or high cost items that may be throwing off your average spending.
Make sure to make a note of your non-negotiables like rent, groceries, and other necessities. Understanding your baseline needs will help you build a budget that fits your needs.
Here’s what else to make a note of:
What areas of spending were you most shocked by? Either spending too much or thought you were spending more?
Is there a pattern in your spending, or are you kind of all over the place?
Are there any subscriptions or services you’re still paying for that you’re not using?
Are you spending more than you’re making or less? What happens to the leftover?
These questions will eventually help you build out a better budget.
Step 2: See what needs to change & establish your values
Now that you’ve laid it all out there, what obviously needs to change? Are you spending $500 a month on fast food or a delivery service (surprisingly easy to do!!!)? Are you letting your savings just sit and waste in your checking account instead of doing something with it? Do you have more than 10 subscriptions but only use a few?
This is when you’ll need to take a hard look at your goals, your income, and your spending and find a way to make them harmonize. If you have a savings goal of $100 a month and you’re only coming up with $50 – where could you adjust your budget to make that happen?
This is a great time to evaluate what really matters to you in your budget. To make sure you’re neither depriving yourself of life’s small joys nor overspending on shit you don’t care about, I practice a method called values-based spending.
Values-based spending is choosing three categories where you want your “non-essential,” aka fun money, to go.
Personally, my three categories are vacation, home decor, and outdoor gear –– so I have a space in my budget dedicated to spending in these three categories.
Values-Based spending works because it’s not an all-or-nothing mindset. You shouldn’t be miserable when you’re paying off debt or just starting out with budgeting. Allowing yourself some fun money is how we keep going instead of feeling like saving money is a punishment.
Even if it’s just $50 a month that you allow yourself to spend in your value categories, you’ll be better off for it.
As you discover your three value categories, write them down. Then go through your statements again and see where you’re spending outside of those categories, and make adjustments as necessary.
This is also a great time to set a few long and short-term goals for savings or debt payoff.
Step 3: Make a plan + choose a system
Now that you’ve done a macro analysis of your finances, it’s time to start building a spending plan and shaping your budget.
As for systems, there are also many to choose from.
- Some prefer a good ole fashioned handwritten budget or ledger, and if you’re this person, I applaud your mental and emotional fortitude.
- Others prefer a system where they can be a little hands-on and a little hands-off, like creating a budget with a personal budget spreadsheet (ahem, see above).
- The final category of budgeters prefers to use apps or other automated systems where they can check-in when they need to and mostly ignore it when they don’t.
The first option is, of course, the least expensive and takes the most work –– but if you’re a tactile learner who loves handwriting and crunching your own numbers, then you’ll naturally gravitate towards it.
Of course, our spreadsheet queens might already be ahead of the pack on option two. Spreadsheets are excellent tools because you can plug and play and even create “sample” budgets to see how the numbers might change if you shuffle them around. They’re usually a less expensive option and come with the bonus of never having to “renew” a subscription.
But there will always be a place for monthly subscription apps –– just make sure you’re not signing up for it and completely ignoring it. A good budget should have you feeling like you’re in control of your finances, not the other way around.
No matter which route you choose, make it fun! You’re more likely to get excited about your budget if it’s actually, you know, exciting.
Maybe creating a budget seems too overwhelming and you need someone to help you through it. That’s why we’re here my friend. Our coaches are ready to give you the step-by-step guide to understanding and controlling your finances.
Speak with a coach (first session is always free!) and find balance both financially and mentally. You’ve got this.
Feeling stuck, anxious, or lack confidence in yourself? Let’s change that…
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meet the blogger
Business & Career Expert, Mentor and Creative Entrepreneur
Instead of prescribing what I think you should do, I help you find what works for you.