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A budget doesn’t have to be boring. They can actually be fun. Best of all, they are not difficult! When you are getting started you have to know 2 main things to create a budget:

  1. How much you make
  2. How much you spend

How Much You Make

So let’s start with your income. How much money do you bring in after taxes and deductions? This is called your net income. This is the actual money you have to spend every month.  This includes any income you would make in a month.

If you have an irregular income, like people in the commissioned or service industry, then you have two options.

Option 1: You can write down the minimum that you would make in one month.  This would be the amount you would make on your slowest month.  Then count everything over that as bonus.

You can use the bonus money for investing, saving or debt reduction (this method will force you to live on a budget that only includes the minimum you would make).

Option 2: Look back at your income for one year, or if you haven’t had that job for a year, a few months will do.

Figure out what you average monthly by added all of your income for the amount of time you track, then dividing by the number of months.

Example:  If you made $24,000 over 12 months (24,000 % 12 = 2000) then you would set $2000 each month to budget. Now, using our example, you would need to open an account for your budget that you would put money into when  you make over $2000.  This would allow you to pull from this account on the months when you make less than $2000 and it would even out, after a few months, to where you will be able to have the same amount to budget monthly.

How Much You Spend

Now write down every consistent bill you have monthly. This includes home, car, student loans and any other set amount. Now you need to figure out how much you spend and whether you can afford to keep spending the same or if you need to change you spending habits. Take one month and track every single item that you purchase.

Every item.

Save every receipt and if you didn’t get a receipt, write down what you spent and where, then put the paper with your receipts.

Now here we are, at the end of the month. Do you spend more than you thought you did? Most people do. Now separate your receipts into categories (groceries, entertainment, eating out, etc), then figure out the amount you need to set for each category. Round down to the nearest 100. If you spent $450 on groceries, then round down to $400.

Spend Less Than You Make

If you figure out that you spent more than you earned, then prioritize your categories by importance and start cutting the least important categories. Usually this includes entertainment and eating out.

If you spend more than you make, you can’t afford to have entertainment for now.

You may be able to just spend less in these categories, but if you are way over, you may have to cut some categories entirely.

Write (or Type) it Down

Finally, you will need to write/type every category and amount down. Now you should know how much you have every month to spend in each category. This will include all the necessary categories, bills and debt payments. This should also include retirement and investing.

If you still have some money left over after everything, you can include a “spending” or “blow money” category that is for you and your spouse to each have money to spend on whatever you want.  Some people find it best to use different envelopes for budgeting to stay organized.

More on envelope budgeting here.

Budget 1 | Budget 2 | Budget 3

Budgeting Tools We Recommend

Personal Capital: Track All of Your Spending in One Place
Goodbudget: Track Your Spending With the Digital Envelope System
Mint: Connect Your Accounts and Automate Your Budget