How to Create a Budget
- January 03, 2023
- by
- stephaniemae
A lot of the steps that I’ll go over came from The Total Money Makeover. If you haven’t heard of it before, do yourself a favor and purchase it. Get the workbook if you can. Books aren’t your thing? Well, Dave Ramsey has a podcast where he goes over the core concepts of the books called, “The Dave Ramsey Show.”
How to create a budget in 3 steps
1. Take a hard look at your finances.
Look at your bank statements over the past three months and be prepared to answer these questions:
- Where is your money going each month?
- How much of your income is going toward paying down your debt?
- What expenses can you reduce?
Do you really need that Loot Crate subscription? Do you really need that amazon prime membership? Oh, you do? Okay, when is the last time you ordered something from Amazon? Are you using all the prime membership benefits to maximize the membership?
If you can’t make up your mind, think about the last time you used that service. How often do you use it a year? Are you maximizing the membership benefits to justify the monthly charge?
Do you need all those credit cards?
Depending on the credit card and your creditworthiness, credit cards can have astronomical interest rates. Take for example, the Hawaiian Miles Barclay credit card. Based on your creditworthiness interest rates range from 17.99% – 26.99%. If you’re paying the minimum balance, over the course of 3 years your balance can double. How do I know? It happened to me.
If you’re really serious about being debt free, then any and all income not going toward your living expenses, or food, should be going toward your debt. Even if you can only afford $50 extra dollars, that’s still extra money.
I want to be clear and remind you, there is nothing to be ashamed of. We all make mistakes and guess what? We live and we learn. Now is the time to learn from your mistakes. Now is the time to change. If you continue to go down the same path and do the same thing, you’ll get the same results.
2. Create a list of your monthly financial responsibilities and payment sources.
Kept that Amazon Prime membership? So did I. Sometimes that 3 day shipping guarantee comes in handy especially if you live in the middle of the ocean aka Hawaii.
Figuring out where and when your money leaves your bank account is so important. If you’re paying for your subscriptions on your credit card, you’re increasing your monthly credit card balance. AND add that good old interest, and without even knowing it, you’re digging yourself deeper into financial distress.
Start creating a list of what’s due each month and how it gets paid. Here’s an example:
Amazon Prime membership
$16/month
Due on the 15th
Paid via credit card
Student loans
$300/month
Due on the 10th
Paid via debit card
Car loan
$500/month
Due on the 8th
Paid via credit card
3. Categorize your monthly spends
Now that you have your list of monthly expenses, let’s find out where the rest of your money goes.
Use your past three monthly bank statements, and your list of monthly expenses to categorize your expenses into the following categories:
- Mortgage or Rent
- Home or Rental Insurance
- Utilities – gas, electricity, water, etc.
- Food – groceries, take-out and groceries
- Phone – monthly expense for phone service
- Internet – monthly expense for internet and or cable package
- Transportation – anything related to your vehicle like gas, repairs, safety check, and registration
- Health – co-pays for doctor visits or medications, out-of-pocket expenses related to health
- Debts – car loan payments, student loan payments, credit cards payments
- Recreation – entertainment expenses like Netflix and Hulu
To keep everything organized, I use a monthly budget sheet like this. To create your own copy, select file > make a copy then start plugging away!
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