How to create a budget
The key to creating and maintaining a monthly budget begins with keeping track of how much money you earn and how much you spend. When it comes to your personal finances, it’s best not to make assumptions. Writing down your monthly finances on paper helps you see your “big” financial picture. And, seeing that picture is the key to changing your habits, so that you can reach your financial dreams. Discover 8 steps on how to create and maintain a monthly budget below, or visit the full infographic.
How budgets work
A budget is a financial plan that accounts for your income and expenses. Creating a budget allows you to keep track of your spending and set savings goals for each month. The budget plan you create should be suited for your financial situation, needs, and financial goals.
Types of budgeting methods
Here are some common types of budgeting methods:
The 50/30/20 budget is a simple way to budget your money. You divide your income into three categories: 50% for necessities, 30% for wants, and 20% for savings and debt repayment. This budgeting method helps you ensure that you're spending within your means and not overspending on non-essential items.
Pay yourself first budget
The pay yourself first budget is another popular budgeting method. With this method, you prioritize saving and debt repayment by setting aside money each month before you spend any of it on other expenses. This budgeting method can help you reach your financial goals more quickly, but it requires discipline to stick to it.
The zero-based budget is a more complex budgeting method where you allocate every dollar of your income to specific expenses. This budgeting method can be helpful if you have trouble sticking to a budget, as it leaves no room for overspending. However, it can be difficult to stick to a zero-based budget if your income fluctuates month-to-month.
Steps to creating a budget
Here are the 8 steps you can follow to create a budget plan that works.
1. Visualize your long-term financial goals
Thinking about your long-term financial goals will help you create a budget plan. Ask yourself what your financial goals are for the next year, for the next 5 years, and for the next 10 years. When it comes to finances, it’s best if you have a long-term vision or plan, so that when you create your budget, you’ll be motivated to stay on track.
What’s your future vision? Would you like to buy a home? If you’re already a homeowner, would you like to improve your current abode? Maybe you’d like to take the vacation of your dreams, or go back to school to continue your education? Really take time to think about your goals, solidify them, then envision that they will happen. You might make a drawing of your financial vision, or create a collage of photos that captures your dream. Once you’ve physically created your long-term vision, place it where you will see it every morning upon awakening. Seeing your vision every day will help you remember your goals.
2. Keep a journal of your expenses
Use a notebook with lined paper and create columns for the date, the amount spent, what you spent it on, and where you spent it. Also include a column to note whether or not the expenditure was necessary or an impulse buy. Keep all of your receipts, too. It not only helps you keep track of your spending habits, but also provides you the opportunity to return items for a refund rather than a store credit. You’ll also want to note your regular monthly bills, such as water, electric, phone, internet, homeowner’s or renter’s insurance, food, clothing, gas, and the kids’ school expenses, etc. If you have any semi-annual or annual bills, such as an HOA bill, or a car insurance payment, divide the total amount by the amount of months to get the monthly amount for your budget.
3. Keep a journal of your income
Include the income from your paychecks, the income from any items you’ve sold, as well as any income from monetary gifts you’ve received, whether it’s a bonus from work or a gift. Always strive to increase your income.
4. Compare the total of your monthly income to the sum of your monthly expenses
Once you have been keeping track of your income and your expenses for at least one month, compare the totals of both. Are you spending more than you are bringing in? Or, are you making more money than you are spending? Seeing your finances on paper helps you analyze your spending and saving habits. Is it possible to lower your expenses? Do you set aside money for savings each month? Even a small amount saved will add up.
5. Create your budget plan
Now that you’ve analyzed your earning, spending, and saving habits, create a budget and stick to it. That plan should, of course, include “must-pay” expenditures, as listed in Step 2. You might also want to include a miscellaneous fund as a buffer zone to cover unexpected expenses. Another tip is to budget for future expenses, such as birthday or holiday gifts or parties.
6. Have a family meeting
Include everyone in the household in a meeting regarding your new budget. Discuss how the family’s spending habits may change, such as eating at home instead of going to restaurants, for example. You might experience some resistance at first because it takes time to change habits. However, once you discuss the big picture vision of your financial plan, and get everyone on board, you’ll be able to travel the path you need to take to get there.
7. Set up a savings plan
If you haven’t already, set up a savings plan and establish it as part of your new budget. Ask yourself how much you would like to save this year. Then, take that number and divide it by 12 to get what you’ll need to save on a monthly basis. When you divide your monthly number by 4, you’ll know what you need to save weekly. Lastly, divide your weekly number by 7 to get what you need to save daily. This may sound a bit elementary; however, when you are armed with a specific dollar amount, you’ll be less likely to spend impulsively.
8. Start investing
When people hear the word “investing”, the stock market or real estate may come to mind. However, there are many ways to invest. For example, start by investing in yourself. Is there a skill you need to learn, or a course you need to take to get a promotion, or to qualify for a higher paying position? Do you work from home and need to purchase software or a new computer to increase your ability to earn more money? Investing your savings back into your business helps you increase your earning potential.
Remember, when you create and maintain a budget, design it so that you can live within your means. Then, change your spending and earning habits to reflect your new budget goals. Focus on your big financial vision to stay on track, and then save and invest any extra income. When you have a goal, and work each and every day towards that goal, maintaining your budget will become a brand-new habit.
Tips for sticking to your budget
Here are some tips to help you stick to the budget you created and achieve your financial goals:
Track your spending often
One of the best ways to stay on budget is to keep track of your spending. This means knowing where your money is going and how much you're spending on each expense. You can do this by setting up a budget-tracking spreadsheet, or by using a budgeting app. Whichever method you choose, make sure to update it regularly so that you always have an accurate picture of your finances.
Set realistic goals
If you're trying to save money, it's important to set realistic goals. This way, you can make sure your budget is actually achievable. For example, if you're aiming to save $100 per month, don't try to cut your spending by $50 every week. Not only is this unrealistic, but it's also likely to leave you feeling frustrated and discouraged. Instead, focus on making small changes to your budget that you can stick to in the long run.
Plan for emergencies
No matter how well you budget, there will always be unexpected expenses. That's why it's important to have an emergency fund to cover these costs. If you don't have one already, start setting aside a small amount of money each month to build up your fund. This way, you'll be prepared for anything that comes your way.
What to do if you need money to cover your monthly budget
If you’re running low on funds before your next paycheck and need some extra cash, you may be wondering how you can cover your budget this month. Luckily, Advance America offers quick and easy loans that can get you the funds you need as soon as the same day you apply. Here are some of the loans we offer:
- Payday loans: Payday loans are small dollar, short-term loans that can help you cover expenses before your next payday. With these loans, you can typically receive a few hundred dollars. Then, you’ll pay back what you owe in two to four weeks, when you get your paycheck.
- Installment loans: Installment loans are short-term loans that give you a lump sum of money. You can pay this money back in fixed monthly payments, or installments, over a few months or years.
- Title loans: Title loans are secured loans that let you use your car’s title as collateral. With these loans, the lender will appraise your car and offer a loan amount worth a percentage of its value. You can keep driving your car as you repay the loan.
- Lines of credit: Lines of credit are flexible loans that let you draw on funds as much or as little as needed, up to your set credit limit. You can pay back this loan all at once or over time. Better yet, you’ll only pay interest on the amount you borrow.
Advance America loans can help cover expenses in your budget
If you’re running low on funds to cover expenses in your monthly budget, Advance America can help. From payday loans and installment loans to title loans and lines of credit, we offer a range of options that can get you quick cash. Once you fill out a quick application, you could receive the funds in your bank account that same day.
Visit Advance America today to learn more about who we are, what money solutions we offer, and why our customers love us.