Budgeting Basics: How to Make a Personal Budget and Get Control of your Finances

Are you struggling with your finances and realizing it’s time to make a personal budget? Discussing the need for a personal budget usually brings about reluctant thoughts and not just a few grumbles. You might resent the thought of a personal budget because restricting your spending seems like no fun. Or maybe you cringe at the thought of truly assessing your financial situation because you know it’s a mess and hesitate to face it. Whatever the reason, the truth is you will always feel better when you are in control of your finances.

Budgets are a GOOD thing! 

In fact, we hope to change the conversation about budgeting from being a negative chore to a positive asset. Much like going to the gym and exercising, at first you might begrudge the task. But once you start noticing the results you begin to appreciate it, and maybe even look forward to it! In the same way, when you’re not used to it, budgeting can be a little rough at first. But once you adjust to the changes, start building some financially responsible habits, and see progress being made towards your money goals, you’ll start approaching your budget with a little more excitement!

Essentially, a budget is just a system you set in place to track every dollar you earn and make sure it has a purpose. While a budget should be a part of every person’s finances, we are all in different parts of our financial journey. Therefore, the reason you initially decide to make a personal budget will result in specific goals that make your budget more or less restrictive than others. However, in any case, a personal budget is there to help you! And it’s important to keep in mind that a budget isn’t a fixed system. As you reach financial goals and circumstances change in your life, such as paying off debt or achieving a higher paying job, your budget can (and should!) change, too. 

How to make a personal budget

So whether your goal is to pay off credit card debt, establish an emergency fund, save for a down payment on a home, or have money to begin investing, it’s time to make a personal budget. And here’s how!

1. Calculate your net income

2. Track your spending: fixed vs variable expenses

3. Determine your personal budget goals

4. Make a personal budget plan

5. Reassess and adjust as needed 

1. Calculate your net income

Before you can make a personal budget, you have to know the amount of money you have to work with each month. For that, you need to calculate your net income. If you are paid a fixed salary and a monthly check(s), this is the amount you have available after taxes and deductions are taken out. Essentially, your take-home pay. 

If you are self-employed and earn a variable income, calculating what you will have available each month can be tricky. But a good rule of thumb is to budget based on your lowest earning month so you don’t short-change yourself in the meager times. Then have a plan for where to put the extra money from more abundant months. 

Also, if you have other sources of income apart from your main job, such as a side hustle or child support, be sure to add that amount to your total net income as well. 

2. Track your spending: fixed vs variable expenses

Now it’s time to start getting into the nitty-gritty for how to make a personal budget. Tracking your spending can be the scary part for a lot of people. But don’t think of it as scary, but enlightening! If you’ve never really paid that much attention to how you spend your money, you might be amazed at how much you truly spend and where it all goes.

Fixed expenses

The first thing you need to do is list all of your fixed necessary expenses. Your necessary expenses are likely to stay the same month-to-month and need to be strictly and automatically accounted for. These fixed expenses your actual needs, and are the bills you have to pay every month to function, such as:

• Rent
• Utilities
• Insurance
• Car payment
• Debt payment
• Childcare
• Savings 
• Church tithes
• Etc.

Variable expenses

Your variable expenses relate more to your wants, as the amount you spend varies due to your lifestyle. Variable expenses are where you become flexible with your budget and really cut back. For instance, if you are aggressively trying to pay off debt, you want to remove any variable expenses you can. These expenses might include gym memberships, dining out, going to the movies, etc. However, if you’re not needing to be as aggressive, maybe get a cheaper gym membership, and come up with a limit for what you spend on entertainment like dining out and movies. Some common variable expenses include:

• Gym memberships
• Going out to eat
• Going to the movies
• Streaming memberships 
• Bowling
• Extra shopping
• Groceries
• Gas
• Personal care

If you’re not sure how much you spend on these categories, a good place to start is your recent bank statement. And begin writing down all your expenses. You can use a good old-fashioned pen and paper for this, or any one of the many helpful budgeting apps and online budgeting tools available.

3. Determine your personal budget goals

Next, if you’re going to make a personal budget, it needs direction. And that direction comes from what your most urgent financial goals are. 

If you are needing to strategize to climb your way out of credit card debt, especially within a specific period of time, your budget will need to reflect that and be very aggressive with cutting costs. Or, you might have recently become debt-free and now want to start building an emergency savings fund. Or maybe you’re out of debt and have a healthy savings account, and now want to build a fund to begin investing. Your goal might even simply be to save up for a nice vacation. 

Whatever your goal, a budget will help you get there!

4. Make a personal budget plan

Now that you have a clear picture of your finances and expenses and have defined your financial goal, it’s time to make a plan and stick to it. You might have one specific goal or an overall financial goal that requires achieving many smaller goals. In any case, when it comes to budgeting goals it’s so important to write it all out and make it visible. Budgeting spreadsheets are one of the most essential tools for this. Using a spreadsheet, you can calculate exact amounts and specific dates to actually see just how long your goal will take, or how much you need to cut back on your variable expenses to reach your goal faster. 

For instance, after creating a spreadsheet you might discover it will take you two years to get out of debt with your current monthly payment plan. However, if you want to try to be debt-free six months earlier, you can calculate exactly how much you need to pay towards your debt each month. Add that amount to your fixed expenses, and make the necessary adjustments in your variable expenses. 

Budgeting tips!

To help cut back on variable expenses, first define your categories such as those listed above. Assign to them a specific limit you can spend according to the disposable income you have left after your fixed expenses. As you budget, you begin to realize that some categories are more important than others in critical times when you have specific financial goals.

Making cuts 

For example, you might be able to cut out your expensive gym membership and entertainment (dining out, going to the movies, multiple streaming services, etc.) altogether just for the intended time. Instead, you can go for walks outside or create a home gym and workout at home for exercise. And for entertainment, you can read books from the library for free, watch the movies you have at home, rent movies from your local library (again, for free!), or check out a few of the free streaming services and endure some commercials for a while. 

The cash/envelope system

If you find yourself struggling with resisting the urge to overspend, use cash and yourself on the envelope system. Essentially, each category gets a specific amount of cash in its envelope. And once it runs out you can’t spend any more on that category.

Supplement your income

However, there’s only so much you can cut even from your variables. Sometimes, if you want to have a specific amount saved or paid towards your debt by a specific time, a budget spreadsheet might reveal that it’s impossible with your current income. If that’s the case, you need to supplement your income. You can try asking for a raise at work, seeking higher-paying employment, or simply get a second job or a side hustle to make up the difference. 

5. Reassess and adjust as needed

Lastly, when you make a personal budget, stay on top of it! Track your spending daily to be aware of what you’ve spent and what you have left in your variable expense categories. If you find that your cuts were too aggressive and just not possible in a category, adjust your amounts when necessary, keeping your overall financial goal in mind. 

Also, as the circumstances of your life change, it’s always a good idea to reassess your budget. Maybe you get a better-paying job, pay off your credit card, or achieve another financial goal. These are great times to come up with new financial goals, adjust your budget accordingly, and, of course, celebrate!

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