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How to Make and Maintain a Budget

I know that budgeting can be a scary word. I can’t tell you how many people I’ve heard say that they’re not sure where to even start when it comes to finances or complain that we learn all about how cells work in school but no one ever taught us how to deal with money.

There’s no escaping it—at least without going to drastic measures—we must interact with money on a daily basis. The basics of creating and maintaining a budget really are not as scary or difficult as you may think they are.

Once you’ve got it figured out, having a budget can help to put your mind at ease when it comes to spending money. Even if you have more debt than you’d like to or spent more than you wish you had, knowing what’s going on is much less scary than ignoring it all and hoping for the best.

How do I create a budget?

1. Figure out how much you currently spend in a month

The first step of this whole process is just to get informed. If the whole budget-making process sounds intimidating, just figure out where you’re starting from. Don’t worry about the rest yet.

It can be scary to look at these numbers, especially if you know your spending isn’t what you want it to be. It may sting a little when you’re first starting out, but knowledge is power. Figuring out your starting point is the first step to creating a healthy, functioning budget, and with a budget, it won’t hurt so much to look at these numbers. It’ll be empowering.

If you pay for most things via credit card, determining your current spending habits is easy. Grab all of your latest bills, and write down the amounts.

How much was spent on food? How much on clothes? Make note of any bills like rent and car payments that you have to pay.

It’s also important not to forget about subscription payments like apps, recurring donations, or products that you get delivered on a regular basis. You may not be charged for these every month, but they’ll still count as part of your monthly budget. For example, if you pay $60 once a year as a yearly subscription fee for an app, that’s $5/month to add to the budget.

Some categories that you will likely need to include in your budget include: utilities, rent, cell phone bills, car payments, recurring donations, music subscriptions (Spotify, Apple Music, etc.), student loans, car insurance, gas, food, and entertainment.

After you’ve looked over your last few months of bills and listed the things that you usually purchase each month, add it all up. Your aim here is to determine the amount of money that you typically spend in a month.

If you want, add up the total for the last few months and then divide it by that number of months to get the average of what you spend in a month. This can be useful if your monthly expenditures vary quite a bit or if last month was a particularly cheap or expensive month. (I know December is an expensive month for many people.)

2. Figure out how much you make in a month

This is typically simpler than figuring out how much you spend. If you are salaried, this can be very easy to figure out: just take the amount of your last paycheck, and double it (assuming you’re paid biweekly).

If your income varies depending on things like clients, hours worked, or if you’ve spent time on your side hustle lately, it can be a little more difficult to determine how much you typically make in a month.

There are a few ways to determine your income when it varies each month. One of the simplest is to find the average. Add up how much you made in the last 6 months, then divide it by 6. In this case, it can be a good idea to use a number slightly lower than average as your monthly income just in case the next 6 months aren’t as good as the previous 6.

Another option, one that works if your income varies only slightly each month, is to use the lowest amount of money that you’ve earned as your usual income. Say, for instance, that in the last 6 months, your monthly income was $2000 at the lowest and $2200 at the highest. In this case, you could consider $2000 to be your monthly income and whenever you earn more than that, put the extra money directly into savings.

One final option is to live off of last month’s income. This option takes just slightly more work than the previous options, but it is also the most concrete and prevents you from overestimating how much you can spend. You will need to calculate at the beginning of each month how much you’ve earned and how much of that can be spent, but you’ll always know that you’re living within your means.

3. Set a budget for the future

Now that you’ve got the numbers figured out, it’s time to start setting up a budget for the future. This is where you determine how much you are willing and able to spend on each category of purchases.

First, list all of the expenses that don’t change. This includes all of your usual bills like rent, car payments, and subscriptions. Next, determine how much of your income you’d like to save. It’s often recommended that we save 10% of each paycheck, but I know this isn’t possible for many people. Still, setting aside a few dollars of each paycheck can make a big difference when an emergency arises.

After you’ve figured out how much your recurring payments are and set aside money for savings, subtract all of those numbers from your total monthly income. The remaining number is what’s left to pay for everything else.

These final variable categories include things like food and entertainment. How much would you spend on these things in an ideal world? Even if you’re currently overspending, knowing what to aim for can be a massive help.

Once you’ve determined the amount of money to budget for each category, you’ve completed the basics of the budget. From there, you can start thinking about how to adjust your spending to stay within the set limits for each category.

The Emergency Fund

Most experts recommend setting aside an emergency fund. This is an amount of money (usually 3 to 6 months worth of income, depending on who you ask) that is in an accessible account to be used in case of, well, emergencies.

If saving 3 to 6 months worth of income is daunting—as it understandably is for many people—do what you can to start building up a small emergency fund. Even just a few hundred dollars can be massively helpful in a pinch.

How to Maintain Your Budget

To maintain a budget, you need to keep track of how much money you’ve spent and where it’s gone. This means that you’ll need a way to write this stuff down. The easier this is, the more likely you are to stay consistent with it.

My boyfriend and I keep it simple. We have a shared list on our phone with 4 categories: food, gas, work expenses, and “everything else.” Every time we spend money, we update that category. At the beginning of the month, they all get reset back to 0. Super easy.

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