How to Make Your First Budget

Reposted from October 08, 2018

Making a budget isn’t exactly fun, or easy. If you’re a young adult, chances are most of you are as highly aversive to the word “budget” as I am. If you’re trying to pay off student loans, making a budget probably isn’t at the top of your list of priorities. No one teaches you how to make a budget in school, to set aside money for emergencies, or how to plan for the future. Aside from those who pursued finance, business, math, or another related major in their undergraduate studies, most of us aren’t very numbers-savvy. Even for those of us who are numbers-savvy, the idea of a budget seems very restrictive to our once spontaneous and carefree nature. If you hate the thought of making a budget, like I do, this article is for you.

Just the idea of having a budget reminds me we’re shifting into a stage of young adulthood and can no longer be the young, wild, and free college students we were. We have increasingly more responsibilities in our lives that didn’t previously even cross our minds. Nothing makes me miss the spontaneity of our youth more than having mandatory responsibilities. My hope is that in making this seem as easy and as simple as possible, we can maintain our finances in order while still having the opportunity to enjoy the fun aspects of our lives.

Here are 8 easy steps to creating what might be your first budget:

  1. Write Down Your Monthly Expenses- this includes your monthly rent or mortgage, utilities, gasoline for your vehicle(s), groceries, loan payments, credit card payments, gym membership, personal care, entertainment, anything you have on auto-pay, and other expenditures. Try to include only the essentials in this section.
  2. Write Down Your Monthly Income— this is your earned income, gift money, side job money, alimony, and any other money that you receive or earn on a monthly basis.
  3. Figure Out How Much Excess Money You Have-– subtract your expenses from your income. Hopefully this leaves you with a positive figure. If not, consider cutting down on some less essential expenses (such as your gym membership).
  4. Decide On What Portion of the Excess Will Go To Savings— this could be a percentage or a fixed amount each month. It could be in the thousands, hundreds, or just a dollar a day. Any amount you can save today will be something your future self will appreciate.
  5. Excess Money Spending— if you have an excess amount of money at step #3 and after completing step #4, you can decide how to spend your excess money. List your expenditures in order of importance. You can create a generic list to use every month (for example: movies, dates, clothes, nails, snacks, or a night out). OR you can plan according to what items you’re hoping to buy (for example: headphones, phone charger, humidifier, vacuum cleaner, or new shoes). Write down an estimated value or cost next to each item. Come as close to the actual value as you can or estimate higher than you think you’ll spend. Writing this down will help make your desired purchases a reality. Keep a list and check off items as you go to see the progress you’re making.
  6. Make a Goal— if you’re saving money, what are you saving up for? It could be for an emergency fund, a down-payment on a house or new car, travel plans, healthcare funds, or early retirement. You don’t need to have a goal for your savings but having one can help motivate you to save more. To help yourself visualize how close you are getting to your goal, you can create a bar graph, line graph, excel spreadsheet, or a drawing. Every till you add to your savings, you can adjust your graph or spreadsheet accordingly, or color in a portion of your drawing until it’s full. Alternatively, if you’re using Excel you can calculate what percentage of your goal you’ve reached and what percentage is remaining.
  7. Prioritize Your Goal-– the next time you’re splurging, think twice on whether your goal is more important than your immediate purchase. Sometimes we can’t avoid spending in the moment, especially when life throws us a curve ball. But for those other times, like at the mall, try a little bit harder to prioritize your savings. Perhaps there’s a cheaper alternative you can buy instead.
  8. Grow Your Savings— think of a time frame. If you’re saving for a big purchase like a house, you may decide on a time frame for when you would like to purchase your house. However, not all savings will have a time frame, like if you’re saving up for emergency funds or healthcare funds.

Hopefully these 8 steps weren’t too overwhelming or daunting. Even if you don’t complete all of these steps or only follow a budget for a few months, it is still a step in the right direction. Keep trying and keep your head high and your ambitions higher.