If you want to achieve financial stability, you have to learn how to create a budget and stick to it. In this article, we’ll share some tips to help you create your budget in a way that works best for you. There is no one-size-fits-all plan. Instead, you may have to go through a phase of trials to find what brings you success.
Steps on How to Create a Budget
If you’re new to budgeting and managing your personal finances, here are some easy steps for how to create a budget for beginners.
Take Stock of Your Income
The first step in creating a budget is knowing how much you make. Gather up pay stubs, the previous year’s tax forms, and/or bank statements to help you get an accurate estimation. You specifically want to look at the amount of income you receive after taxes.
List Your Monthly Expenses
Next, list your monthly expenses. As you list these expenses mark which of them are necessities and which are wants. Also, note how much you are putting toward savings. This will come in handy later depending on what budgeting method you use.
Analyze Your Income vs. Your Spending
Based on your income and your expenses, where are you spending too much? Where can you decrease spending, and where are you required to make payments (rent/mortgage, loans, etc.). Are there actions you can take to lower your bills? What percentage of your income goes to each of your savings/debt repayment, necessities, and wants?
How to Create a Budget Plan
There are many tried and true budget plans that you can use when you evaluate how to create a budget for yourself. Here are a couple of ideas:
The 50/30/20 Budgeting Rule
The 50/30/20 budgeting rule advises that 50% of your income goes to mandatory expenses and necessities. Then, 30% goes to your wants, like shopping, streaming services, or dining out. Lastly, the remaining 20% goes to savings and building an emergency fund. If you already have an emergency fund, you can put this 20% toward saving for retirement or paying down debt.
The Envelope System
Dave Ramsey is a popular name among personal finance advisors, and his recommendation for budgeting is that you use the envelope system. After building a budget, you use cash to pay for everything you can. You take that cash, and you separate it into envelopes that are designated for specific expenses.
For instance, if you decide you will spend $150 on groceries every week, then you will place $150 in an envelope and that is the only payment method you will bring with you to the grocery store. That way, you ensure that you stick to your budget.
Once you implement your budget, be sure to stop and see how it’s going. According to CNBC, 74% of people have a budget but 79% of them fail to stick to it. Building financial stability for yourself goes beyond learning how to create a budget; you also must evaluate whether it’s working for you. So, tweak things as you go, and continue to research new methods that may work better for you.