Establishing a budget and sticking to it isn’t easy, but it’s the best way to be in control of your finances and make sure your money is going toward the expenses that matter most to you.
Follow the steps below as you set up your own, personalized budget:
- Make a list of your values. Write down what matters to you and then put your values in order.
- Set your goals.
- Write down your goals.
- Think about what you want to accomplish financially in the next three months, the next year, and the next three years.
- Determine your income.
- Figure your available income (the amount of your take-home, or net, pay).
- Do not include overtime pay, because you shouldn’t rely on that as regular income.
- Determine your expenses.
- Review your checkbook register, credit card statements, store receipts, and more. Where is your money really going?
- "Fixed expenses," such as a rent, auto, or student loan payments, are easy to determine.
- "Flexible expenses," such as food, clothing, and entertainment, vary from month to month.
- Don't forget about expenses, such as taxes or insurance, that are billed quarterly, semi-annually, or yearly.
- Look into personal finance software programs that offer a budgeting feature to help you track these expenses.
- Create your budget.
- Think of your budget as a “spending plan,” a way to be aware of how much money you have, where it needs to go, and how much, if any, is left over.
- Your budget should meet your "needs" first, then the “wants” that you can afford.
- Your expenses should be less than or equal to your total income.
- If your income is not enough to cover your expenses, adjust your budget (and your spending!) by deciding which expenses can be reduced.
- Pay yourself first!
- Saving is a very important part of protecting yourself financially.
- Save as much as you can every month. Even a small amount can make a big difference if you keep it up.Check out our savings calculator to learn more.
- A great goal is to establish an emergency savings fund large enough to cover three to six months of your living expenses.
- After you have an emergency fund, your savings can go toward meeting your goals.
- Be careful with credit cards. Learn more.
- Check back periodically.
- Be sure to review your budget regularly.
- Does the plan still meet your needs and help you achieve your goals? If not, make some adjustments or create a new budget that better meets your needs.
Ready to budget? Use our budget calculator!
FAQs
Follow the steps below as you set up your own, personalized budget:
- Make a list of your values. Write down what matters to you and then put your values in order.
- Set your goals.
- Determine your income. ...
- Determine your expenses. ...
- Create your budget. ...
- Pay yourself first! ...
- Be careful with credit cards. ...
- Check back periodically.
Go ahead and share your budget estimate, even if it's a broad range. Cite a high- and low-end, or give a more specific figure if you're comfortable doing so. If your budget depends on a variety of factors, be open about that. What considerations will impact how much you can spend?
What is budget mapping? ›
Mapping a budget allows to keep an estimate and tracking finances using the budget gives liberty to expand the budget wherever needed and alter it. Wherever budget provides liberty, initiatives can be undertaken such as hiring new workers, investing in a new market or improving advertisement strategy.
What is money mapping? ›
Money mapping captures many activities involved in money management. It includes understanding your income and tracking your expenses, establishing short-term and long-term savings and spending goals, and building good credit so that you can be more in charge of your future.
How do I plan my future finances? ›
Personalized financial planning explained step-by-step
- When it comes to life's biggest moments, you probably had a plan. ...
- Set financial goals. ...
- Follow a budget. ...
- Build an emergency fund. ...
- Manage debt. ...
- Protect with insurance. ...
- Plan for taxes. ...
- Plan for retirement.
The Planning Process
- Step 1: Set a Goal. Identify something you want to achieve or obtain, your goal. ...
- Step 2: Acquire Knowledge. Gain an understanding of your goal and what will be required to achieve it. ...
- Step 3: Compare Alternatives. ...
- Step 4: Choose a Strategy. ...
- Step 5: Make a Commitment. ...
- Step 6: Stay Flexible.
7 tips for creating an effective budget
- Calculate your income. ...
- Is it fixed or variable? ...
- Track your spending. ...
- Figure out your non-negotiables. ...
- Cut back where you can. ...
- Set financial goals. ...
- Review your budget regularly.
Example of 50/30/20 budgeting
Needs, 50%: Housing, utilities, transportation, health care, groceries. Wants, 30%: Travel, dining out, tennis lessons, streaming services. Savings, 20%: 401(k) contributions, Roth IRA contributions, emergency savings.
What is a budget short answer? ›
A budget is a spending plan based on income and expenses. In other words, it's an estimate of how much money you'll make and spend over a certain period of time, such as a month or year. (Or, if you're accounting for the incoming and outgoing money of everyone in your household, that's a family budget.)
What is a good way to budget? ›
In the 50/20/30 budget, 50% of your net income should go to your needs, 20% should go to savings, and 30% should go to your wants. If you've read the Essentials of Budgeting, you're already familiar with the idea of wants and needs. This budget recommends a specific balance for your spending on wants and needs.
The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.
What is the 60 20 20 method? ›
Put 60% of your income towards your needs (including debts), 20% towards your wants, and 20% towards your savings.
What are the 5 basics to any budget? ›
What Are the 5 Basic Elements of a Budget?
- Income. The first place that you should start when thinking about your budget is your income. ...
- Fixed Expenses. ...
- Debt. ...
- Flexible and Unplanned Expenses. ...
- Savings.
Here are some steps that may help when building your own budget:
- Choose a spreadsheet program or template.
- Create categories for income and expense items.
- Set your budget period (weekly, monthly, etc.).
- Enter your numbers and use simple formulas to streamline calculations.
- Consider visual aids and other features.
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
How to do a budget calculation? ›
How to make and manage your budget
- Work out your after-tax income. ...
- Review your spending. ...
- Choose a budgeting plan. ...
- Track your progress. ...
- Automate your bills and savings. ...
- Revisit and review your budget when needed. ...
- Allow up to 50% of your income for needs. ...
- Use up to 30% of your income for wants.
So how does it work? You first need to identify your income (step one) and track your expenses (step two). Comparing the two, that is where you are (step three). Then knowing where you are, you need to make choices to point you in the right direction (step four) and plan your route (step five).
