How to Build and Stick to a Budget

Budgeting can seem like a daunting task. You aren’t sure where to begin and how to go about creating a budget you can stick to. I am going to show you an easy way to create your own budget in excel or you can use a great online program.

There are plenty of websites out there that can help with budgeting, but I think that Mint may be the best one out there. You grant them access to view your accounts (it is secure) and they aggregate all your transactions into one place. You can then create budgets and goals and track them. But how do you create a proper budget? The following can be used in either excel or through mint, the key is to stick to it!

Start with your income, after taxes, health insurance, and any 401(k) deferments, how much money do you bring home every paycheck? For this example say you bring home $1,500 every two weeks, that makes your yearly after withholding income $39,000 or $3,250 per month.

This is your starting point, you have a maximum of $3,250 every month to spend. If you have been reading my blog you know that I advocate paying yourself first, so of the $3,250, $325 (10%) should automatically go into savings every month. Whether that money is for an emergency fund, or investing for retirement (just make sure you understand the amount of risk you can tolerate!), saving 10% is a minimum number you should hit. That is the first line item in your budget, as it is the most important to reaching your financial goals.

Now this is where the expenses come into play.

Fixed Expenses – These don’t change much month to month, this is an average you can expect every month.

  • Rent/Mortgage – $1,000
  • Car Payment / Insurance – $400
  • Utilities – $200
  • Cable / Internet – $150
  • Cell Phone – $50
  • Gas for Car – $150
  • Groceries $400

So after savings and the fixed expenses you are left with $575 in discretionary income. So after all of your basic expenses to live are covered, you have $575 to spend on your life. Make sure you are monitoring your budget, if you notice your grocery bill is steadily higher, increase the line item for groceries and decrease your discretionary budget. You can use your discretionary income for just about anything (that’s why it is called discretionary!): eating out, having drinks, shopping, movies, bowling, you name it! But at the end of the month you have only $575 and that is the max you can spend without going into debt. (see my articles on how to save thousands in interest, or the right way to pay off that credit card)

Now some of your expenses may be more or less than what I have outlined, but you need to do the math yourself and find what your discretionary number is, because that is the key number you need to pay attention to every month. If you have a big purchase coming up (a vacation, house, car, tv) this is the pool of money you need to save extra from to achieve those goals. Saving an additional 10%, or $325, will put your discretionary income at $250. Now this doesn’t seem like a lot, but over time, as you earn more money (think about part time jobs or side hustles, you may be able to earn passive income with minimal effort in this new era of e-commerce) that discretionary number will grow. Just remember that with any extra income, you need to be saving more. That is why saving a % is much more important than saving a specific $ amount.

In the end, once you have a finished budget, it makes financial decisions much simpler. You KNOW if you can afford something, it isn’t a guess.

Don’t forget to take the 5 Week $500 Challenge, you may be surprised at how you can cut out a lot of unnecessary expenses and save for the future.

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