5 Easy Steps Toward Crafting an Effective Budget

May 02, 2018

Establishing a responsible budget is the first step toward a healthy financial lifestyle. You may already plan out a few expenses here and there, but the smartest way to ensure you’re making the most of your money is by following a budget that’s based on your specific income and day-to-day needs.

If you’ve never attempted to make a budget before, it might seem overwhelming. Don’t worry—here’s a step-by-step guide for creating a plan that can help set you up for financial success.

1. Start With Your Net Income

IRS 1040 Tax Form Being Filled Out by kenteegardin, on Flickr
IRS 1040 Tax Form Being Filled Out” (CC BY-SA 2.0) by kenteegardin

No bells and whistles here. After taxes, what are you working with each month? That’s where your budget will begin.

2. Recognize your Regular Expenses

088.365 - March 29, 2010 by meddygarnet, on Flickr
088.365 – March 29, 2010” (CC BY 2.0) by meddygarnet

Be sure to include everything. Overlooking the Netflix bill or underestimating how much you pay in electricity each month can throw a kink in your plan to become a lean, mean financial machine.

3. Set a Savings Goal

20171004-IMG_3356.jpg by ShebleyCL, on Flickr
20171004-IMG_3356.jpg” (CC BY 2.0) by ShebleyCL

It’s always best to treat saving as an expense. The rush of payday often leads to impulse purchases, so be sure you set savings aside before looking at new shoes.

4. Be Realistic

budget - human resources - paperwork - o by justworks1, on Flickr
budget – human resources – paperwork – o” (CC BY-SA 2.0) by justworks1

Recognizing how much you should be saving or spending in certain areas will save you a headache down the line. If you do overbudget in a certain area, that just means you have more to spend later.

5. Track your Spending

Woman on a Laptop Computer by ota_photos, on Flickr
Woman on a Laptop Computer” (CC BY-SA 2.0) by ota_photos

Whether you use a spreadsheet or keep things old-school with pen and paper, it’s essential to know how much you’re spending in each area of your budget. Failing to properly record what you spent and where you spent it makes for a bigger mess.

Crafting a budget is only half the battle. The hard work comes in sticking to your plan no matter what. Just know this: the benefits will come in the long run. And although this may sound like a lecture from your cheap dad, well, sometimes dad knows what he’s talking about. Unlike your dad, we’re not upset you didn’t make the varsity basketball team. The coach was totally playing favorites.

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