How to Budget

This one is going to be short and sweet. There are a lot of ways this can be complicated, and people definitely work hard to make it so. But it shouldn’t be complicated and really isn’t. Every dollar that comes in needs a job. You wouldn’t hire employees just to have them stand around, would you?

To start:

  1. List your income. (if this fluctuates month to month, take a look at your last 6 months, add it up, and divide by 6 to get your average income)
  2. List all of your bills. (electricity, water, mortgage/rent, storage unit, phone bill, internet, credit cards, student loans, etc)
  3. List all of your expenses. (groceries, gas, eating out, entertainment, cable, streaming services, etc)
  4. Double-check yourself. Run through the previous month’s transactions on your credit cards and bank statements to make sure you haven’t forgotten about anything.
  5. Subtract ALL of your bills and expenses from your income

Are you left with a negative balance or a positive balance?

If negative:

  1. What are some expenses you’re willing to cut back on?
  2. Are there any modifications that can be made to your living habits that could adjust your bills? (adjust the temperature of your thermostat, unplug electronics when not in use, change out light bulbs to improve efficiencies)
  3. Adjust the budgeted amount for each category

Are you still negative? What are some new ways you can generate more income?

If positive, assign where those extra funds will go (Emergency fund, College savings, Maintenance funds)

That’s it. Once you’ve set your budget, track your spending over the course of the month and see how you did. The next month, make adjustments as needed. Some categories were overfunded, others were underfunded.