How to Create a Money Budget

[TimothyRanna]

How to Create a Money Budget

A budget is a plan for all the money you have. Whether your income is steady or fluctuates from month to month, a budget can help you organize your spending, savings goals, and other financial obligations into a manageable system that can help you achieve more financial freedom and reduce stress in your life.

Step 1. Calculate After-Tax Income

If you receive a regular paycheck, the amount you receive is likely your net income, or take-home pay. After-tax income is usually what’s left after federal and state taxes are taken out. When creating your budget, add back any deductions you have for your 401(k), health insurance, or life insurance to get a more accurate picture of your savings and spending.

If you have other income, such as a side job, subtract any expenses that reduce that income, such as taxes or business expenses.
Step 2: Choose a Budget System

A budget system is a framework for how you create a budget. Since everyone has different habits, personality types, and approaches to money, there’s a system that works for your lifestyle. Your budget should include all your needs, wants, and most importantly, emergency expenses and future savings. Examples of budgeting systems include the envelope system, zero-based budgeting, and the 50/30/20 budget.

Step 3: Track Your Progress

Track your spending or use a tool like a budgeting app or budgeting spreadsheet. Pay attention to where your money is going. If you’re spending too much on a particular area, cut back on that. If you have money left over after cutting back, use it to pay off debt, save, or pursue other financial priorities.
Step 4: Automate Your Savings

Make things easier by automating as much as possible. You can set up automatic deposits into your emergency fund, investment account, or retirement account on payday.

If your income is not consistent, set up reminders to manually transfer money whenever possible. Either way, an accountability partner or online support group can help you stay accountable for choices that don’t fit your budget.
Step 5: Implement Budget Management

Your income, expenses, and priorities will change over time, so revisit your budget regularly (e.g., quarterly). If you find that the budget system you initially choose isn't working, try a different strategy. The budget you choose doesn't have to last forever.