Wondering how to create a budget but don’t know where to start? This step by step guide shows you how to make a budget that works for you so you can save money and reach your financial goals. You can also download my free printable budget sheet!
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Money: Unless you make a plan for it, it will disappear with you even realizing it.
This is the exasperating truth about money. And that’s why it’s no secret that creating a budget each and every month is the best way to reach your financial goals.
Maybe you already know this, and maybe you’ve been wanting to create a budget for a while. But maybe you just don’t know where to start. I’ll be the first to admit, there are some pretty complicated budgets out there!
But here’s the thing:
Making a budget doesn’t have to be that complicated. Once you create a budget a time or two, it really becomes second nature. I should know. I’m the chief financial officer in our house, and I absolutely love making our monthly budget now that I know what I’m doing!
So if you’ve been wondering how to create a budget that will work for you, then you’re in the right place, my friend. I’m going to show you the easiest way to create a simple budget that will help you take control of your finances so you can reach your goals.
How to Create a Budget That Works For You
To create a budget, you really only need to know three basic things:
- First, you need to know which categories to include. I’ll offer a list of some common budget categories so you can see which ones might apply to you.
- Second, you need to know about Dave Ramsey’s zero-based budget technique. This means that you make a plan for every dollar you expect to earn so none of your money magically disappears.
- Third, you need to know which budgeting options are available so you can pick the one that will work best for you.
Speaking of which, you can go ahead and grab my pretty budget printable here. It’s free. 🙂
Once you know what to include in your budget, how to structure it using the zero-based budgeting technique, and which budget options you have to choose from, I’ll show you how to fill out your budget using five simple steps.
Which Categories You Should Include in Your Budget
Your basic budget categories should include housing, utilities, giving, food, transportation, savings, healthcare, personal expenses, and debt. Here are the subcategories you might find within each major category:
- Home repairs
- Homeowners’ association dues
- Charitable giving
- Car insurance
- Emergency fund
- Funds for Christmas, vacations, or any other major expenses you need to save for
- Doctor visits
- Beauty products
- Pocket money for him and her
- Gifts (excluding Christmas)
- Kid supplies
- Credit cards
- Student loans
- Car payments
If you have any other expenses that aren’t on this list, be sure to include them in your budget.
The Zero-based Budgeting Technique
Ah, the zero-based budget. This is a very important concept if you want to know how to create a budget that will actually help you manage your money.
The zero-based budget is a money management technique from Dave Ramsey where you structure your budget in a way that your expected income minus your expected expenses equal zero.
Now, that doesn’t mean you spend every dollar you make. Instead, it means that you have a plan and a purpose for every dollar you expect to earn.
The traditional way to create a budget goes something like this: You write down what you expect to earn and tally up the bills and other expenses you expect to incur. You subtract your expenses from your income in the hope that you have some money left over.
Well, what happens to that leftover money? I can assure you that it doesn’t often end up in a savings account! Instead, it goes toward a fancy dinner out, or an unplanned vacation, or a shopping spree at the mall.
See what happens? That leftover money gets spent.
With a zero-based budget, that doesn’t happen. Instead of having money left over after you subtract your living expenses from your income, you go ahead and make a plan for that extra money.
Ideally, any extra money should go toward building an emergency fund, so you’d assign it to your emergency fund category. Once you have at least $1,000 built up in an emergency fund (we prefer to have more than that), then your extra money should go toward paying off debt.
The point is to make a plan for that extra money so you don’t blow it on unnecessary things.
Remember, if you don’t have a clear plan for every dollar you expect to earn, your money will disappear without you even realizing it.
You have several options for creating your budget. You can use a pen and notebook paper, an Excel spreadsheet, one of Dave Ramsey’s budgeting forms, Dave Ramsey’s EveryDollar budgeting app, or my pretty budget sheet.
Feel free to play around with some different budgeting forms to find what works best for you.
How to Fill Out Your Budget in Five Easy Steps
Once you decide what kind of budget you want to use, you need to fill it out. Here’s how you would fill out my budget printable:
1. Write the total amount of money you expect to earn this month in the “income” box.
2. For each major category in your budget, write down the subcategories that apply to you and how much you expect to spend in each of the “budgeted” sections.
3. Add up your category totals and write that number in the “expenses” box.
4. Subtract your total expected expenses from your total expected income. Is that number zero? If you ended up with leftover money, go back and add it to a category, preferably your emergency fund or one of your debts if you already have a fully-funded emergency fund. Remember, the goal is to make that number zero so you have a plan for every dollar you expect to earn.
5. At the end of the month, fill in the “spent” sections in each category. Comparing your budgeted amount with the amount you actually spent is helpful so you know how much to budget for next month.
Wrapping it Up
And that’s it! Now you know how to create a budget that works for you.
You determined which categories you need to include in your budget, and you know why you should structure your budget so that your planned income minus your planned expenses equal zero. This is what Dave Ramsey calls zero-based budgeting.
You also know which budgeting options you have to choose from. You can create your budget using a simple pen and piece of paper, a printable budget form from Dave Ramsey, Dave’s EveryDollar budgeting app, or my own pretty budget printable.
Lastly, you know how to fill out your budget. If your planned income minus your planned expenses equal anything other than zero, you know where to add that leftover money so every dollar has a plan and a purpose.
While this information is still fresh in your mind, go ahead and make a budget that actually works for you. And always remember that if you don’t make a plan for your money, it will disappear without you even realizing it.
Other Posts You May Enjoy
- How to Use the Cash Envelope System (and why you should!)
- 30 Ways to Save Money So You Can Reach Your Financial Goals
- How to Save Money without Feeling Deprived
- How to Know Which Financial Advice to Follow
- How to Spend Less Money When Your Spending is Out of Control
- No-Spend Month Results: What We Learned from Our First No-Spend Challenge
What about you? Did you already know how to create a budget using Dave Ramsey’s zero-based budgeting technique?
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