How to Make a Budget: 6 EASY Steps

Wondering how to make a budget? These 6 steps will set you on the right track.

If you want to become a more conscious spender and are looking for ways to keep track of your money, you should stick to a budget. A budget allows you to be in more control of your money and save for your plans. 

But how to make a budget that works FOR you? In this step-by-step guide, we will detail how to create a budget to track your finances. So read on.

How to Make a Budget: 6 EASY Steps

Whether you are creating a budget for your future goals or just keeping track of where your money goes every month, there are various ways to do it. You can create a budget in a spreadsheet, on a piece of paper, or in an app.

No matter how you do it, there are 6 steps to make a budget:

Step 1: Find Out Your Net Income

The first step in creating a budget involves calculating your net income. Your net income is the income you take home with you after all the deductions. 

Most people keep their gross income in mind when spending, which results in overspending because the gross income does not account for all the employer and tax deductions. This makes you think that you have more money to spend than you actually do. 

Step 2: Log All of Your Spending

Once you have found out your net income, the next step is to log all of your spending to keep track of your expenses. Take your monthly bank statement out and list all of your fixed monthly expenses, such as mortgage or rent, utility bills, fuel, grocery, auto payments, etc. 

Now list down your miscellaneous expenses, such as how much you spend on entertainment, dine outs, gifting, etc. This is where you can find some room to cut back and save. Make sure to note down both the fixed and variable monthly expenses and add them up to find out an exact figure.

Step 3: Subtract Your Expenses from Your Net Income

Once you have determined your net income and your expenses, it’s time to subtract your expenses from your net income. If you get money left after subtracting your expenses from your income, don’t let this trick you into thinking that you can spend it mindlessly.

Make sure that any remaining money you have goes towards your goals. Put all that extra money aside to make sure it is dedicated to your specific goals.

If you get a negative number after subtracting your expenses from your income, don’t worry. Review your expenses to find areas where you can cut down, such as entertainment expenses, takeaways, etc. 

Step 4: Set Spending Limits

Now that you have made all the calculations and reviewed your fixed and variable expenses, it’s time to set spending limits. Use this information to determine how much you will spend in the coming months while keeping your net income and goals in mind. 

Break down those expenses into various categories and set spending limits for each category. Make sure to prioritize your needs over your wants. 

For instance, your rent is considered a need. On the other hand, a monthly coffee subscription is a want. It’s important to save money by compromising a little on your wants to meet your financial goals.

Step 5: Adjust Your Expenses According to Your Spending Limit

The next step involves adjusting your expenses to stay within your budget. To do so, you will need to cut down on expenses that go towards your “wants”. For instance, consider skipping a dine-out if you can eat at home.

If your expenses are still too high, see if you can lower your fixed expenses in any way. For instance, consider doing your grocery from a wholesale shop to get a better rate on everything. Even small savings can amount to a big amount if done right. By making these small changes, you will notice a major difference in your overall expenses at the end of the month.

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Step 6: Make Sure You Stick to the Budget 

Last but not least, review your budget and keep track of your spending on a daily basis. This will ensure that you are sticking to the budget.

Your budget should remain the same for the entire period, except for when you get bonuses or increments. If your income increases, you can set aside some more amount to save. But no matter the case, always keep an eye on your budget.

Good luck!