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Budgeting Made Simple – How to Create a Budget and Tips for Success





The majority of Americans say they are stressed about money. After all, we are in a debt crisis. We are spending more money than we bring in and not saving enough for retirement. While there are many factors that contribute to this widespread issue, one important reason behind this is a lack of budgeting. In a recent survey from Thriving Wallet, 90 percent of Americans say that financial considerations have an impact on their stress levels. In another survey, 65 percent of Americans said they don’t know how much they spent last month. Only 30% of U.S. households have a long-term financial plan. In order to be financially successful, you must take control of your finances.

This course explains what a budget is and why it is important. We introduce you to the budgeting process and offer several budgeting tips to help you reach those goals.

What is budgeting?

The purpose of creating a budget is to take control of your money. It helps to ensure that you will always have enough money for the things you need and the things that are important to you. It can also put you in a position to reduce your debts or save for your future and ultimately reach financial freedom.

Without a budget, you don’t have a clear view of where your income goes, what expenses you have, and how to free up unnecessary spending to pay toward your debt.

Setting customized goals will help to ensure you stay on track. But, don’t worry, your goals can be adjusted as you move along your journey.

Why Budgeting is Important

I. It helps us keep an eye on our financial goals. Part of the budget process is setting goals. You set short-term and long-term goals and use your budget to work toward them. A budget, in a sense, forces you to work toward the things you want the most instead of spending your money on unimportant and frivolous things here and there because it creates a defined process to achieve them. A budget can be a wonderful reminder of what you are saving for. The more you see and review your goals, the more likely you are to achieve those goals.

II. See your spending habits. Too many people spend money they do not have, habitually charging credit cards and racking up loans and debt. As a matter of fact, the average credit card debt per household reached $9,260 in 2022. People don’t realize they are overspending until they get the credit card bill the next month. By creating a budget, you are forced to analyze your spending line by line. Where is your money going? Are you spending a ton of money going out to eat multiple times a week? Maybe you online shop far too often. Writing it down will open your eyes to your spending habits which will help lead you to change the bad spending habits you may have adopted.

III. Helps you feel better about your retirement. Budgeting doesn’t just help you manage your money now. It will set you up for financial success over your entire life if you set appropriate savings goals. Many Americans are stressed about having enough money at retirement for good reason. According to a 2020 annual report of the Social Security Board of Trustees, the surplus in the trust funds that disperse Social Security benefits will be depleted by 2035. Creating a budget will help you allocate money toward saving for your retirement.

IV. Helps you enjoy your money. Budgeting puts you in control of your money. That means you have the power to allocate a portion of that to things you love. You get to decide how much you spend in each category. Budgeting has the power to convert a life full of everyday stress from money to a life where you worry less about your money because you are in control of it. It opens up opportunities to have more fun.

V. Helps you get out of debt. The truth is, if you want to achieve wealth, you have to stop overspending and instead allocate that money to debt if you have it. Otherwise, you will continue to pay interest on your debt.

VI. Tracks your progress. A budget provides a nice visual of your progress as you move throughout your budget journey. You are able to identify areas of strength and opportunity, which gives you more control over your money. Seeing positive change encourages you to keep moving forward toward your goals.

Now that you know more about why budgeting is important, we are now going to introduce you to the budgeting process.


The Budgeting Process

Following the budgeting process helps in many different ways, as we just learned. But, most importantly, it helps us pay off our debt and save money. Let’s walk through the budgeting process steps.

I. Identify your goals. You want to identify your five to ten-year goals, one-year goals, and one-month goals. Do you want to pay off certain debts, purchase a home, or maybe just focus on paying off one credit card this year? Perhaps your current short-term goal is to build your emergency fund. Your plan is your own, but you need to write it down and make it a focal point on your budget so that you can review it each time you look at your budget.

II. Gather your financial statements. To do this, you will need to do a great deal of paperwork gathering. You need to bring your statements to the table. You will want your checking, savings, investments, and any credit card statements you have. Gather up your utility bills and mortgage statements as well. You need to also think about income. Pull in paychecks and your w2. What you want to do here is really take a look at where your money is going and what is coming in. What expenses do you have? How much money are you bringing in?

III. Determine your income. How much income can you expect each month? If your income is in the form of a regular paycheck where taxes are automatically deducted, then use the net income. Your net income is your take-home pay. You also want to include outside sources of income. This could be child support, Social Security, or money from a side hustle. Record this total income as a monthly amount. If your income is variable, you will want to be conservative and use a figure from your lowest earning month.

IV. Create a list of your monthly expenses and create spending categories. Using your statements to help, create a list of all your monthly expenses. You should separate these into two categories – fixed and variable. Your fixed expenses are those that do not change month to month, like your mortgage or car payment. Variable expenses are those that do change month to month like groceries, gas, and entertainment costs. You will also want to add a category for surprise costs if you do not yet have your emergency fund started.

V. Determine the monthly average cost for each expense. For these categories, determine the average monthly cost by looking at three months worth of spending. To calculate the average amount you spend on groceries, for example, add up all of your grocery spending during the past three months and divide by three.

VI. Compare your monthly income and expenses. Compare your figures. Is your income more than your expenses? That is wonderful! That means you will have additional funds to put toward debt or save. If your expenses are more than your income then you are overspending. We are creating a budget to take control of our spending. We will get there.

VII. Make adjustments to expenses. Whether your income exceeds your expenses or not, you will still take some time to review your expenses and make thoughtful decisions on whether or not you need to keep it. Eliminating expenses will allow you to access more money to allocate to important categories like debt reduction and savings. Are you paying for subscriptions you don’t use? Do you still have a gym membership you haven’t used in the last year? Maybe you decide to eat out less.

If you find that eliminating some of your expenses still does not get you to a good balance, you may have to consider finding ways to increase your income, like starting a side hustle.

The goal is to have your income be as close to expenses as possible. You want to balance. If you have the extra income you should allocate these funds to savings or debt categories.

VIII. Use your budget. Now that you have your categories with income and expenses listed, you will now need to monitor and track those expenses and income. There are templates available and even apps to help you with this. Don’t be afraid to use technology here. Many banks have online tools that will sort your transactions for you, giving you a good picture of what your monthly spending looks like. There are also many apps out there that do the same thing. Reviewing your spending every day will ensure you are not overspending. Once you have reached your spending limit in a category, you will either need to stop that type of spending for the month or move money from another category to cover additional expenses.

We have just reviewed the simple budgeting process. However, there are several different budgeting techniques to consider. In the next module, we will review a few of those techniques. The key is choosing the one that best fits your financial goals


8 Budgeting Tips

Now that you know more about the process of budgeting and budgeting techniques, I am now going to offer 10 budgeting tips to consider when you start using your own budget.

I. Create your budget before the month begins. In order to create an effective budget, you must plan ahead. Each month looks different and you need to prepare for that. A week before a new month starts, sit down and plan your next month’s activities and expenses. For instance, you may have a vet appointment one month, but not the next. Once you’ve planned your month’s expenses, prepare your budget.

II. Limit your use of your credit card. Using your credit card is not a bad thing. After all, it is convenient and oftentimes comes with rewards. The problem with credit cards is that consumers tend to overspend and accumulate debt. This results in additional interest and fees. Instead, consider paying with a credit card only if you will have the money to pay it off at the end of the month to avoid any interest charges.

III. Automate your savings. Having money go directly into your savings will help make allocating your funds just a little bit easier. One way to do this is through direct deposit. If you have direct deposit through your employer, consider setting it up so that a certain percentage of your income goes straight into your savings account. You can also set up automatic transfers from your checking account to move money into your savings account at whatever frequency you decide.

IV. Revisit your budget often. Assess your budget monthly to get an idea of how well you are sticking to your goals. If you notice you’re consistently overspending in one category and under-spending in another, even out your budget to make it more achievable. Your budget is a living document and should be updated when needed. As far as maintenance goes, this will need to occur more frequently, sometimes daily. Set a particular time on a particular date or day of the week to perform budget maintenance, like updating figures.

V. Use budgeting tools. There are many budgeting tools out there to help you on your budgeting journey. Embrace technology. You may choose to use the various spreadsheet programs out there like Excel to do your budget. If so, spruce up your Excel knowledge and tap into the many interesting and helpful features available that can help you. Or, utilize the numerous budget templates, apps, and online banking tools that can simplify the sometimes tedious budgeting process. Many of these applications will track your expenses for you, so that you don’t have to track them manually, saving you a ton of time and stress.

VI. Include a contingency category. Periodically you may have expenses pop up that do not fit into the categories you have created. This category needs to be handled carefully, though. Don’t use it as an excuse to overspend in another area and pull from this one.

VII. Consider a no-spend day. Maintaining a budget takes discipline. To build that discipline to maintain a strict budget consider a no spend day periodically. This will refresh your mindset and get you back on track if you have floundered on your budget.

VIII. Be realistic. Setting overly ambitious goals when you just begin budgeting might not be the best idea. A list of unattainable goals simply won’t do you any good. It is important you don’t set yourself up to fail. Keep your goals realistic. Ensure your goals are SMART. That means— specific, measurable, attainable, relevant, and timely.


Wrapping Up

Managing a budget is hard work but it is worth it when financial freedom is the result. Make it a goal of yours for the new year to establish a budget. Start with a simple monthly budget until you become comfortable enough to expand. Stay tuned for my release of a simple weekly and monthly budget template.

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