How to Create a Budget: Budgeting For Beginners

Are you looking to create your first budget? This budgeting for beginners article will help you learn the basics of creating your first budget. Whether you are looking to take control of your finances, pay off debt or save money, a simple but effective budgeting system can help you reach these goals.

You have probably heard many times that the first step to financial freedom is to create a budget. For beginners, budgeting can be overwhelming, and it may sound scary sometimes. It shouldn’t be like that. Don’t let these feelings stop you from being better with your money.

Creating a budget that works comes down to knowing how to start budgeting according to your current needs. Although the basics are the same–know your income and track your spending–every person or family is different, so budgets need to be created according to each one’s necessities.

Since I became a stay at home mom, I have started to manage our family finances. Budgeting has taught me that it is possible to be more mindful when managing money. My budget system is pretty straightforward, and it works for my family and me.

I’m constantly assessing my budget to make sure I’m on track and not overspending. With this, I make sure that our budget is working for our family.

This budgeting for beginners’ guide will show you how you can create your first budget and take charge of your finances. Knowing how to manage your money properly can really pay off down the road.

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Before You Start Budgeting

Set Your Goals

Why do you need a budget? This is the first question you should ask yourself. Knowing the reasons why you need a budget can help you be more conscious of your financial goals.

Whether your goal is to get out of debt, increase your emergency fund, or save for a major purchase, you’ll need to write down your financial goals. They will help you stay focused and remind you that there is a purpose for why you are doing this.

Gather Information

Make sure you have the necessary information on hand. Things like bank statements (paper or online), monthly utility bills, pay stubs, hospital bills and credit card statements are some of the documents you’ll need to create a budget.

To help you create your first monthly budget, download my free monthly budget template. Once you have the budget template, follow the steps below, and start creating your first monthly budget.

Budgeting for Beginners: How to Create a Budget

Step 1: Calculate Your Monthly Income

The first step to creating a budget is to calculate your total monthly income. Include your (and your spouse’s, if married) total monthly income. Also take into account income sources from any side job you have, rental properties, child support, etc.

Every bit of income that is received on a regular basis should be accounted for.

One thing to keep in mind is if your income can fluctuate from month to month, it could make a big difference in your budget.

For instance, if you are paid per week or bi-weekly the same amount–let’s say $1000–that times the amount of checks you receive per month is your total income.

But what happens when the amount of every check you receive is different because you are paid per hour or by commissions? In this case, you will need to take an average of your last three to four paystubs and use that as your income.

Step 2: List Your Expenses

In this step, you will need to list all the expenses you have every month. Some expenses will be fixed (the same amount due every month), and other expenses will be variable (fluctuate every month).

To make sure you are not missing anything, look at your bank statements for the last three months, average the amount of each expense, and write down where your money is going.

Do not exclude anything from this category. Every expense that you spend money on has to be written down.

Determine Your Fixed Expenses

Fixed expenses are the ones where the amount to be paid every month remains the same. Some examples of fixed expenses include rent or mortgage, some utility bills, cable bills, cell phone bills, internet bills, car insurance, etc.

Determine Your Variable Expenses

Variable expenses are those that change from month to month. Some variable expenses include clothing, groceries, entertainment (eating out, snacks, movie tickets, etc.), fuel, house and car maintenance, etc.

I know that this step can be a little tedious but to make sure that you have a realistic budget, you will have to list every single expense.

Step 3: Subtract Your Expenses from Your Income

This is the part where you will probably have to make some adjustments to your budget so that it makes sense to you and your financial goals. Add up your expenses and subtract this amount from your monthly income.

After subtracting your expenses from your income, the result should equal zero. If not, go back to the previous steps and make some adjustments to your budget. Below are some approaches you can take according to your results.

Positive Balance: You are making more than what you spend per month. Depending on your goals, it would be wise to add this “extra” amount to your savings or emergency fund or increase your debt repayment (credit card, student loans, etc.).

Negative balance: You are spending more than what you make. In this case, go back to your budget and find ways to reduce or eliminate some expenses.  Your goal here is to have a balance of zero in your budget, meaning your expenses (including your savings) match your income.

When you have a negative balance, I recommend revising your variable expenses and make some adjustments to them. Another alternative is to find ways to make extra money such as a side hustle that will allow you to increase your income.

Related:

• How To Make Up To $22 An Hour By Teaching English Online
• 9 Real Work From Home Jobs To Start Today
• How To Make $300 a Month of Extra Income
• 10 Ways To Make Money As A Stay At Home Mom

The point here is knowing where you stand financially. Learning about your financial habits will give you a clear idea of the options you’ll have to take to reach your financial goals.

Step 4: Assess Your Budget

To make sure your budget is working, you’ll need to monitor and adjust your budget on a regular basis. Depending on your schedule, revise your budget once a week, every other week, or once a month. Many people make the mistake of setting a budget and forget about it, which is not wise at all.

There will be things that can change over time in your life, and they will impact your budget. For instance, your income may change, your financial goals may change, or there can be an unforeseen emergency where money is needed. All these things will affect your budget directly. If this happens, then your budget should be re-evaluated and adjusted.

Things to Consider When Budgeting

There are different things to consider when setting a budget. Here are two of the most important aspects to consider.

Get Your Loved Ones Involved When Creating a Budget

I am the person who manages our family finances, but that doesn’t mean that my husband is not involved at all. I recommend getting your significant other involved and talking about your family budget regularly. Together, you can go over your budget, evaluate, and make any changes that are needed. This will ensure that everyone stays on track and achieve the same financial goals.

Be Realistic

This budgeting for beginners guide is all about being realistic about your financial goals and the impact that budgeting has on it. Whether you would like to be debt free, save money, or take control of your finances, budgeting is your first step to achieving those financial goals.

Budgeting can be hard in the beginning, but if you stick to your budget, all your efforts will pay off! This budgeting for beginners guide will help you create a budget with a clear purpose in mind. You will not only learn to be better at managing your money but also be a step closer to reaching your financial goals.

Do you have a budget? What other budgeting tips would you add to the list? I’d love to hear from you in the comments!

Related:

• 5 Steps To Consider Before Setting Up a Budget
• 70+ Amazing Ways To Save Hundreds Every Month
• 8 Simple Steps to Save Over $7000 This Year
• How to Save Money When You Are Living Paycheck to Paycheck
• How to Make $1000 Extra a Month Working from Home