Creating a budget

Most people need a way to see where their money is going each month. A budget can help you feel more in control of your finances and make it easier to save money for your goals. The key is to find the right way to track your finances. The following steps can help you create a budget.

Step 1: Calculate your net income

Step 2: Track your expenses

Start by preparing a list of your fixed expenses. These are regular monthly bills like rent or mortgage, utilities, and car payments. Then, prepare a list of your variable expenses, which are those that can vary from month to month, such as grocery shopping, gasoline, and entertainment. This is where you may find opportunities to reduce expenses. Bank and credit card statements are a good starting point, as they often break down your monthly expenses by category.

Keep a record of your daily expenses using whatever you have on hand, such as pen and paper, an app on your smartphone, or budget spreadsheets or templates you can find online.

Step 3: Set realistic goals

Step 4: Create a plan

You may want to break down your expenses even further to identify what you need to have and what you would like to have. For example, if you commute to work every day, gasoline counts as a necessity. However, a monthly music subscription may be considered something you would like to have. This distinction becomes relevant when you're looking for ways to reallocate money to meet your financial goals.

Step 5: Adjust your expenses to stay within the budget

If the numbers still don't add up, consider adjusting your fixed expenses. Could you save more by looking for a better price on car insurance or homeowner's insurance? These decisions come with trade-offs, so be sure to carefully evaluate your options.

Remember that even small savings can add up to a significant amount of money. You'll be surprised to see how much more you can save just by making a few small adjustments.

Step 6: Review your budget regularly