New to Budgeting? Start here for an easy breakdown of the 6 step process
Whether you are a working mom or a stay-at-home mom, adding even one task to your to do list can seem daunting. I focus on making my budgets simple and realistic.
A budget is the absolute KEY to your financial success, no matter where you are on your money journey.
Just remember to take it one step at a time!
I’m going to take you back to basics, and break down exactly how to budget, broken down into 6 steps.
STEP 1: DETERMINE YOUR MONTHLY INCOME
This will look different for everyone and is not always easy. If you are paid on salary or have consistent income each month, this step will be much easier.
If you are paid hourly and don’t always work the same number of hours, or work multiple jobs and side hustles, this will be a bit more challenging to do.
I suggest looking back at your last couple of months’ total income and using that to help you with a “best guess” as to what your next month’s income will be.
Add up all of your expected income amounts from all of your various sources of income, and this gives you your total estimated monthly income for the upcoming month
When in doubt, always UNDERESTIMATE your income.
It’s much easier to end up with more money than expected at the end of the month, instead of over-budgeting and ending up with less money than expected.
This is your starting point to creating your first budget! Step one done!
STEP 2: WRITE OUT ALL OF YOUR MONTHLY BILLS (ALSO CALLED YOUR FIXED EXPENSES.)
A fixed expense is an expense that is going to stay consistent month-by month, and there’s not too much you can do to change these payments based on your spending habits.
Here’s some examples of fixed expenses:
- Rent or mortgage payments
- Utility bills
- Car payments
- Internet
- Childcare
- Health Insurance/Car Insurance
- Monthly Subscriptions
- Any Minimum Debt Payments
Write all these out either on paper or digitally, then you’re ready for the next step
STEP 3: SUBTRACT YOUR MONTHLY FIXED EXPENSES (THE NUMBER FROM STEP 2), FROM YOUR TOTAL MONTHLY INCOME
This is an important step, and it’s important to do this step BEFORE moving on to finish the rest of your budget.
Your monthly fixed expenses are things that you NEED to live, and you most likely can’t change them or control them too much (like your rent costs)
Here’s an example of how you will do this step:
Total Estimated Monthly Income = $5000
– Fixed Expenses (Monthly Bills) $ 3000
= Money left over to finish your budget $2000
It’s important to know this dollar amount, to help you estimate how much money you have left to spend on the rest of things you need to budget for in the next step.
STEP 4: WRITE OUT ALL OF YOUR OTHER MONTHLY EXPENSES (ALL EXPENSES THAT ARE NOT THE BILLS FROM STEP 2-ALSO CALLED VARIABLE EXPENSES).
This is one of the more challenging steps of budgeting…but stay with me, you’re almost there!
You’re going to take that dollar amount leftover from step 3, in our example it was $2000, and assign an amount to each category and expense item.
Keep in mind your limit on how much you can spend on these variable expenses.
Here’s an example of what this would look like:
- Groceries: $1000
- Birthday Gift for Mom: $50
- Eating Out: $200
- Doctor Visits $100
If you haven’t been tracking your expenses and have no idea how much you’re spending money on these things every month, that is TOTALLY OK!!
You have to start somewhere, and you will learn how to do this.
Give yourself plenty of time for this step.
Here are some examples of variable expenses:
- Groceries
- Clothing
- Birthday Gifts
- Christmas gifts
- Vacation expenses
- Dining out
- Car repairs
- Gas
- Doctor’s visits
- Savings- either short-term or long-term
ALL of these expenses are variable, because they can change from month to month.
You also have a lot more control over most of your variable expenses, which is great!
Try to look back at your previous months’ spending to give yourself an idea of how much you are spending on your variable expenses every month.
If you can’t do that for whatever reason, don’t let this step stop you from budgeting!
Just make your best guess on what you might spend on these things each month, write them down, and move on to the next step.
STEP 5: DO THE MATH, AND FINALIZE YOUR BUDGET
It’s time for more math…but don’t worry, you’ve already got the hardest part down IMO and we are on to the exciting part.
At this point you should have written out:
1. Your total monthly income amount
2. Your list and total dollar amount for each of your fixed expenses (monthly bills)
3. Your list and total dollar amount for each of your variable expenses (expenses that can change like food, clothes, etc.)
The final step is to take your total amount of ALL expenses you have listed (fixed expenses and variable expenses), add these up, and get a total dollar amount.
Ideally, your total dollar amount for all of your expenses should be less than your total monthly income.
So you’ve got your budget and some real numbers right in front of you, now what?
STEP 6: TAKE ACTION! SAVE MONEY, PAY OFF DEBT, INCREASE INCOME, CUT BACK ON EXPENSES, AND FOLLOW YOUR BUDGET.
You did it! You’ve taken a huge step to taking control of your money by making your budget.
You’ve given yourself a plan on exactly how you are going to spend your money this month, and what you are going to spend it on.
By now, you’ve either realized you have money left over after your expenses, or maybe you are in the negative and spending MORE money than you are making.
Now’s the time to take action, and figure out what to do next.
You may need to look at:
- Increasing your income
- Saving more money
- Figuring out how to decrease your monthly bills/fixed expenses
- Cutting back on costs to decrease your variable expenses
- Making some lifestyle changes
- Spending more money on things you love! (YES, spending is a part of budgeting and we can and should totally enjoy this)
No idea where to start with any of this? Don’t worry, check out the rest of the articles on my blog for tips on all this and so much more.Follow me on social media for that extra inspiration and motivation.
- Remember that this is a journey, not a sprint, and you CAN DO THIS!