Establishing a budget and sticking to it isn’t easy, but it’s the best way to be in control of your finances and make sure your money is going toward the expenses that matter most to you.
Follow the steps below as you set up your own, personalized budget:
- Make a list of your values. Write down what matters to you and then put your values in order.
- Set your goals.
- Write down your goals.
- Think about what you want to accomplish financially in the next three months, the next year, and the next three years.
- Determine your income.
- Figure your available income (the amount of your take-home, or net, pay).
- Do not include overtime pay, because you shouldn’t rely on that as regular income.
- Determine your expenses.
- Review your checkbook register, credit card statements, store receipts, and more. Where is your money really going?
- "Fixed expenses," such as a rent, auto, or student loan payments, are easy to determine.
- "Flexible expenses," such as food, clothing, and entertainment, vary from month to month.
- Don't forget about expenses, such as taxes or insurance, that are billed quarterly, semi-annually, or yearly.
- Look into personal finance software programs that offer a budgeting feature to help you track these expenses.
- Create your budget.
- Think of your budget as a “spending plan,” a way to be aware of how much money you have, where it needs to go, and how much, if any, is left over.
- Your budget should meet your "needs" first, then the “wants” that you can afford.
- Your expenses should be less than or equal to your total income.
- If your income is not enough to cover your expenses, adjust your budget (and your spending!) by deciding which expenses can be reduced.
- Pay yourself first!
- Saving is a very important part of protecting yourself financially.
- Save as much as you can every month. Even a small amount can make a big difference if you keep it up.Check out our savings calculator to learn more.
- A great goal is to establish an emergency savings fund large enough to cover three to six months of your living expenses.
- After you have an emergency fund, your savings can go toward meeting your goals.
- Be careful with credit cards. Learn more.
- Check back periodically.
- Be sure to review your budget regularly.
- Does the plan still meet your needs and help you achieve your goals? If not, make some adjustments or create a new budget that better meets your needs.
Ready to budget? Use our budget calculator!
FAQs
Follow the steps below as you set up your own, personalized budget:
- Make a list of your values. Write down what matters to you and then put your values in order.
- Set your goals.
- Determine your income. ...
- Determine your expenses. ...
- Create your budget. ...
- Pay yourself first! ...
- Be careful with credit cards. ...
- Check back periodically.
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
How to estimate future budget? ›
The key steps in a sound forecasting process include the following:
- Define Assumptions. The first step in the forecasting process is to define the fundamental issues impacting the forecast. ...
- Gather Information. ...
- Preliminary/Exploratory Analysis. ...
- Select Methods. ...
- Implement Methods. ...
- Use Forecasts.
This iteration calls for you to put 75% of after-tax income to daily expenses, 15% to investing and 10% to savings.
How should a beginner budget? ›
We recommend the 50/30/20 system, which splits your income across three major categories: 50% goes to necessities, 30% to wants and 20% to savings and debt repayment.
How do I start planning my financial future? ›
9 steps in financial planning
- Set financial goals.
- Track your money.
- Budget for emergencies.
- Tackle high-interest debt.
- Plan for retirement.
- Optimize your finances with tax planning.
- Invest to build your future goals.
- Grow your financial well-being.
Are you approaching 30? How much money do you have saved? According to CNN Money, someone between the ages of 25 and 30, who makes around $40,000 a year, should have at least $4,000 saved.
What is the 40 40 20 budget rule? ›
The 40/40/20 rule comes in during the saving phase of his wealth creation formula. Cardone says that from your gross income, 40% should be set aside for taxes, 40% should be saved, and you should live off of the remaining 20%.
How to budget $4000 a month? ›
making $4,000 a month using the 75 10 15 method. 75% goes towards your needs, so use $3,000 towards housing bills, transport, and groceries. 10% goes towards want. So $400 to spend on dining out, entertainment, and hobbies.
What is predictive budgeting? ›
Predictive budgeting is a form of budget forecasting that involves the use of historical data and artificial intelligence to identify recurring trends and patterns in historical data sets.
The future value formula is FV=PV(1+i)n, where the present value PV increases for each period into the future by a factor of 1 + i.
How to do the Dave Ramsey budget? ›
HOW TO MAKE A BUDGET:
- Write down your total income for the upcoming. month. — This is your take-home (after tax) pay for both you. ...
- List ALL of your expenses. — This includes regular expenses (rent or mortgage, electricity, etc.) ...
- Subtract your expenses from your income. This. ...
- Track your spending throughout the month.
Simply put, it states that you should always save a portion of your income before spending it. This fundamental principle encourages you to prioritize saving over impulsive spending, ensuring a secure financial future. When it comes to managing personal finances, the golden rule serves as a guiding principle.
What is the 80 budget rule? ›
The rule requires that you divide after-tax income into two categories: savings and everything else. As long as 20% of your income is used to pay yourself first, you're free to spend the remaining 80% on needs and wants. That's it; no expense categories, no tracking your individual dollars.
How do you make a future plan? ›
The Planning Process
- Step 1: Set a Goal. Identify something you want to achieve or obtain, your goal. ...
- Step 2: Acquire Knowledge. Gain an understanding of your goal and what will be required to achieve it. ...
- Step 3: Compare Alternatives. ...
- Step 4: Choose a Strategy. ...
- Step 5: Make a Commitment. ...
- Step 6: Stay Flexible.
Budgeting Basics: 7 Steps to Building Your First Budget
- Why is Budgeting Important? ...
- Define Clear Financial Goals. ...
- Digitalize Your Expense Tracking. ...
- Calculate Consistent Monthly Income. ...
- Categorize and Analyze Expenses. ...
- Craft and Fine-tune Your Budget. ...
- Regularly Update Your Strategy. ...
- Prioritize an Emergency Fund.
The budgeting process lets an organization plan and prepare its budgets for a set period. It involves reviewing past budgets, identifying and forecasting revenue for the coming period, and assigning amounts to spend on a company's various costs.
