Personal Finance Tips: How to Make a Budget in 3 Easy Steps

Financial organization can lead to a lot of stress if you don’t know where to begin. So start by laying out every piece of it on the table — every account balance, bill, and debt. Even if it may seem scary to face everything at once, this simple process of sorting everything out is likely to give you a huge sense of relief. When you meet your financial situation head-on, it turns from an invisible monster into a beast you can conquer.

It may surprise you that building a budget isn’t all that tough to do. You just need to gather together your bills and credit card and bank statements and open up a fresh spreadsheet.

These are the 3 easy steps to building a budget:

1. Figure out your income.

Fundamental Finance Academy | Making a BudgetThe first step is to add up your income from all sources — fixed and variable. Your fixed income is the net amount (after taxes) you can expect to make every month, from every income source. Maybe you work 45 hours a week. Your work counts five of those hours as overtime, while the other forty hours are required from you weekly. In this example, earnings from your 40 hours are fixed, and the overtime is variable. When figuring out your income, separate the fixed from the variable to give you an idea of what income you can depend on monthly.

If you work freelance, count the income amount you expect to make every month as your fixed; any amount over the fixed should be counted as variable income.

2. Figure out your spending.

Now that you know how much money is coming in, it’s time to see how much is going out and where it’s going. Reviewing your bank and credit card statements, line by line, enter your payments for the last couple of months into your spreadsheet program, under “variable” or “fixed.” Just like with your income, “fixed” defines bills with amounts that aren’t expected to change ‚ such as phone bills. “Variable” defines bills that change from month to month, such as grocery bills and loan payments.

When you’ve added all these to your spreadsheet, organize the items into spending categories, such as “groceries,” “student loans,” “entertainment,” etc.

3. Set Goals.

After laying out your finances, you can begin analyzing the data in front of you. You may have seen some figures that came as a shock (“I’m spending $700 a month going out to eat?!”) and some that you expected, which leads you to step 3 — putting your priorities in order and setting goals. If you’re unnecessarily spending $700 a month on restaurants but are having trouble making rent, this is your opportunity to rectify the situation. Make goals for every spending category, based on your needs and what’s reasonable. Also, make sure to set aside some amount, even if it seems paltry, to put into saving each month.

And, if you come in under budget one month in a spending category, you can choose whether to add the leftover money to next month’s budget or to put it into savings.

Creating a budget is an involved process, but an easy one. With it, you’ll find yourself in control of your finances, making wiser decisions. If you become overwhelmed in the process or full of questions, though, that’s where the Fundamental Finance Academy becomes one of your greatest assets. Just give us a call, and we’ll help you sort everything out.

Holly Morphew, AFC® is personal finance expert, coach, writer, and speaker based in Denver, CO. She is the CEO + Founder of Financial Impact, a specialized financial coaching practice that helps career-driven entrepreneurs and professionals create personal wealth and financial independence. She is the author of Simple Wealth, a #1 best-seller in wealth management, personal transformation, real estate, and women & business. Holly began teaching personal finance in 2006 as a service project with Rotary International, and received the prestigious “Rotarian of the Year” award for her work in financial literacy. As an Accredited Financial Counselor® with the AFCPE, Holly has also been recognized for “Bridging the Gap” for outstanding work in private practice. Her philosophy, “abundance is our natural state” is the core of Financial Impact programs, which help clients bridge behavior and mindset to realize their potential. In addition to personal wealth building, Holly also helps clients start and scale businesses and create new streams of income.

Hi! I’m Holly, the founder of Financial Impact and an award-winning financial coach. I help career-driven leaders and entrepreneurs create wealth, take the stress out of managing money, and feel confident and powerful when it comes to their finances.

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