Creating a Budget

Whether you’re looking to create a personal budget spreadsheet or just get a better grasp on money management, start with these six steps.

Note Your Net Income

The first step in creating a budget is to identify the amount of money you have coming in. Keep in mind, however, that it’s easy to overestimate what you can afford if you think of your total salary as what you have to spend.

Remember to subtract your deductions for Social Security, taxes, 401(k) and flexible spending account allocations when creating a budget worksheet. Your final take-home pay is called net income, and that is the number you should use when creating a budget.

Track Your Spending

It’s helpful to keep track of and categorize your spending so you know where you can make adjustments. Doing so will help you identify what you are spending the most money on and where it might be easiest to cut back.

Set Your Goals

Before you start sifting through the information you’ve tracked, make a list of all the financial goals you want to accomplish in the short-and long-term. Short-term goals should take no longer than a year to achieve.

Long-term goals, such as saving for retirement or your child’s education, may take years to reach. Remember, your goals don’t have to be set in stone, but identifying your priorities before you start planning a budget will help. For example, it may be easier to cut spending if you know your short-term goal is to reduce credit card debt.

Make A Plan

Use the variable and fixed expenses you compiled to help you get a sense of what you’ll spend in the coming months. With your fixed expenses, you can predict fairly accurately how much you’ll have to budget for.

Use your past spending habits as a guide when trying to predict your variable expenses.

Adjust Your Habits If Necessary

Once you’ve done all this, you have what you need to complete your budget. Having documented your income and spending, you can start to see where you have money left over or where you can cut back so that you have money to put toward your goals

Keep Checking In

It’s important that you review your budget on a regular basis to be sure you are staying on track. You can also compare your monthly expenses to those of people similar to you. Few elements of your budget are set in stone: You may get a raise, your expenses may increase or you may have reached your goal and want to plan for a new one. Whatever the reason, keep checking in with your budget following the steps above.