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How to Make a Budget in 3 Simple Steps

By Robert Banks

No one likes to live on a budget, but budgeting is necessary, especially in a poor economy. It is a money plan that helps you get to your desired financial goals. Without a personal budget plan is like going on a road trip without a map. You’ll get lost and have a hard time finding your way out.

How to Create a Budget for Yourself

1. Make a personal budget with your spouse or significant other half if you’ve one. Sit down, discuss and figure out what your joint financial goals are, both short term and long term.

Long-term goals are generally defined as those that take more than 5 years or can be achieved over your life time such as paying for your kid’s college education or funding a long and active retirement.

On the other hand, short term financial goals should take no more than a year to achieve. For example, saving for a family vacation or you aim to pay off that $1000 outstanding balance on your credit card.

2. Once you’ve the goals mapped out in front of you, your next step is to plan your route to get to those goals. Identify how you’re spending money now and track your spending so it stays within your budget.

Record every single transaction you make with your money. Use a notebook, keep receipts and write down specifically where every penny goes.

You may want to use a personal-finance program such as Quicken or Microsoft Money to help you but the downside is, overzealous attention to details.

Whatever methods of recording you use, the key is to gather as much information as you can so that you’ll have a good idea what your spending habits are.

If your income exceeds your expenditure, great! Take that extra income (20% is a good figure to start) and set aside as savings. Savings should always come first before any spending. Even a small amount saved will help you reach your short term and long term financial goals.

However, if you find yourself spending more than you earn, you may need to cut back on spending such as finding ways to save money (buy house brands rather than name brands whenever possible, or dine out less often). Alternatively, increase your income (for example, taking up a part-time job) to help you gain financial independence fast.

3. It’s very important to create a budget that you can live comfortably with. Be realistic and make reasonable allocations for things like food, clothing, shelter, utilities and insurance. Also, set aside a reasonable amount for entertainment and the occasional luxury item. Let’s suppose you’re spending $300 on eating out, you can reduce that amount by 20 percent.

If you’re constantly off budget, you need to review and adjust the budget accordingly – a budget should never be a financial starvation diet or it’ll be less likely to work for the long haul.

It’s alright if you stray away from your personal budget once in a blue moon. I know how hard it can be to stick to a budget plan. But the truth is, without budgeting yourself, it’s even harder to achieve your financial goals.

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