Creating (And Sticking To) A Personal Budget

Budgeting is the first step toward holistic financial wellbeing. In understanding where you put your dollars, you can alter your lifestyle to better suit your income and personal goals—whether that means putting down a deposit on a home or paying off student loan debt. Building a budget is a time-consuming process, but with the right tools and determination, you can easily figure out how much you should be spending where. Below, we have detailed four steps for building a sustainable budget.

1. Calculate your net income. You might accept a job at a certain salary, but that’s not how much money you get in a paycheck every other week. Subtract your deductions, such as Social Security, taxes, 401(k), and flexible spending account allocations. The final take-home pay—the money left after these deductions—if called your net income. This is the number you should use when crafting a budget. This first step is essential; you need to know how much money is coming in order to determine how much can go out.

2. Track your spending. For one month, track every dollar you spend. Coffee, dates, rent, Netflix—all of it. Using an excel spreadsheet will allow you to clearly see where you spend your money. Consider using categories, such as “Grocery,” “Household,” “Misc. Fun,” and “Essentials.” Put rent, utilities, loan payments, and transportation expenses into “Essentials,” then divvy up the rest accordingly. The Essentials category should be mostly fixed. Every other category is dynamic; when you look for ways to curb spending, target these portions of your spending. The remaining funds should be recorded in a separate “Savings” column.

3. Set goals. Make a list of the financial goals you want to accomplish, both long- and short-term. Then, research or estimate the funds necessary to accomplish those goals. Divide this number by the amount you are able to save each month to determine your estimated timeline. Though it may seem comically long, having a set number of budgeting months will motivate you to reach the goal.

4. Adjust accordingly. If you want to devote $200 of your “Misc. Fun” category to savings but discover it’s not possible, re-evaluate your budget. Don’t be afraid to move priorities around, especially in the first few months. Budgets are necessarily fluid—go with the flow, stick to your spreadsheet, and you’ll reach your financial goals with time.