Whether your goal is save money for the future, get out of debt, or to be more money conscious; they all need to start with a solid budget. Without a budget how are you going to know where you money is going? To help you get going in the right direction here are 6 easy steps to help you create a budget.

1. Choose a format for tracking your budget

The key to success with staying on top of your budget is having a good format to map out your income and expenses. You format of choice needs to be ultra-simple that way you don’t get frustrated and lose interest. There are tons of software packages or workbook templates out there that can be extremely helpful, but I personally use a good ol’ excel spreadsheet. In my budget workbook I have a tab for each of my major categories, and a summary tab that aggregates all the totals. To keep my budget easily accessible I keep it in a Dropbox folder. This way I can access it and make changes across all my devices.


2. List your income and bills

Make sure everything gets on the list. For variable items like electric bills, try to take an average. Don’t for get about any monthly memberships like the gym, or Netflix. For credit cards list the balance that you are paying per month. If you are married don’t worry about figuring out who pays for what at this stage. The point of this exercise is to understand how much is coming in, how much is going out, and what’s left over.

3. Don’t forget your living expenses

Now you need to list all of your expenses like food, entertainment, and gas. Don’t over think it or worry about cutting back yet; just do your best to log the things you do regularly. If you are not sure how much you usually spend on these items go back through your online checking account activities, or bank statements. I felt this part of the exercise was the most eye-opening for me. If you are not constantly monitoring your spending you can easily overspend on things like trips to Starbucks. Those $3 cups of coffee add up quick.

If you have a hard time keeping track of things like this, you may want to look into using a service like Mint. Mint aggregates all of your checking accounts, credit cards, and other expense accounts into one dashboard. This is great because you can categorize your transactions to understand, where your money is going . That way you can see the total amount that you spend on things like fast food, gas, etc, even if they are across multiple accounts. Need more budget resources? Check out this budgeting 101 guide.

4. Map out your infrequent expenses

This is an area that catches a lot of people up. Infrequent expenses like insurance, car registration, etc that come around every few months are hard to plan for. If you don’t plan for them they will catch you off guard and disrupt your system. To avoid this list all your infrequent expenses, total them up, and divide that number by 12. Now you know the amount that you need to put away each month to prepare for these events. Now you have a manageable amount that you can save every month, instead of having to scramble to come up with the amount all at once.

I also add a little extra to account for unexpected expenses like a major car repair, or family emergency. I store that amount in a high interest savings account that is not connected to my main checking account. This is more psychological, if I don’t see it I won’t be tempted to spend it. Out of site out of mind!

5. Calculate your disposable income

Once you have everything listed subtract all of your expenses from your income and that’s your disposable income. Depending on what your goals are you should take some of this and add to your credit card bills to help pay them off faster, or maybe add some to what you are putting away for infrequent expenses. Whatever you do be realistic, so don’t over do it. The goal here is to build good habits. As you develop techniques that will help you save money on normal activities you can always adjust.

If you ended up with a negative number, go back and cut back things like allowance, or groceries. If the number is extremely large you may need to consider canceling things like gym membership. It’s tough, but you have to consider what your priorities are. If you are trying to pay off credit cards you are taking short term cutbacks that will help you in the long run.

6. Make an action plan and stick with it

Now that you understand how much money you are bringing in and where that money is going you need to be diligent about sticking with it. Things change over time, so make sure you check back frequently to make sure that you are still on track. Also don’t forget to reward good behavior. Sticking to a budget, especially if it requires you to change your habits can be hard. Therefore make sure you are taking time to acknowledge wins. This can be as simple as treating yourself to a shopping day, or a nice dinner. This will help you stay motivated and keep with it. Also remember to take time to review your goals to help you remember why you are making these sacrifice.

Hopefully this was helpful. If you have any additional suggestions, or questions on creating a budget please leave them in the comments. Good luck!