5 step budgets

Budgeting allows you to control your money instead of your money controlling you. Budgeting may seem restrictive, but it actually gives you the freedom to spend and save more.

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Step 1: Determine your financial goals.

Here’s an example of long-term goals:

  1. Save $1,000.
  2. Pay off debt.
  3. Build emergency fund.
  4. Be able to pour money on my cat without worrying about it.

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Whatever your goals are, they’re important to have! Long-term and short-term goals will help you stay focused and motivated.

If your first goal is to save $1,000, you focus on that one. All you have to do is make sure you have some amount of money leftover every month to save. You can adjust your spending to make it happen quicker.

Step 2: Calculate Your Income

Don’t overestimate your total income! Remember that there are deductions from paychecks–taxes, SS, etc. You need to find your net income to know what you’re actually taking home.

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Step 3: Track Your Spending

Make a list of your expenses in order of importance. It might look something like this:

  • Rent/utilities
  • Insurance
  • Food
  • Student loans
  • Car note
  • Transportation
  • Internet
  • Cellphone
  • Savings
  • Clothes
  • Entertainment

The order of importance is relevant, especially if you don’t always have enough money to cover your expenses. It basically means you pay first things first to make sure you’re prioritizing food over Sephora.

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To track spending, you could save receipts, look at bank statements, or track it with an app (Mint, NerdWallet, EveryDollar).

Step 4: Budget!

Knowing what you spend, what you want to spend, and how much you make is all you need to make the first draft of your monthly budget.

Don’t expect it to be perfect the first time. It won’t be.

I prefer to make spreadsheets for budgets (Microsoft Excel, Google Sheets). Keep your expenses in order of importance and allocate your monthly income.

This is an example of a simple annual budget:

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The goal is to spend less than you make.

How do you hold yourself accountable?

You can use an app, you can use a pen and paper, you can use an envelope system. Find what works best to motivate you, because everyone is different.

If you tend to overspend, the envelope system might work well for you.

Label each envelope with a section of your budget, then put that amount in cash in the envelope. For example, if your “food” envelope runs out before the month is over, you can’t get sushi–you’ll have to eat leftover lasagna or stop by Mom’s for dinner.

Step 5: Monitor and Adjust

Your first draft won’t be spot on. For the first few months, evaluate where your spending is off.

Thought you only spent $20 on gas a month? Whoops. Felt like you needed $300 of chicken nuggets? Probably not.

Forgive yourself, correct your mistakes, and try again. You’ll get there!

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