Making a budget is one of the most important things you can do to manage your money and reach your financial goals. Whether you’re saving for a big purchase, planning for retirement, or just trying to stay on top of monthly bills, a well-done budget can be your road map to financial success. Let’s go through the steps to create a budget that works for you.

Get Your Financial Info Together

Before you start adding up the numbers, get all your financial documents in one place. This includes information about your income sources, such as salary, commissions, or rental income, and records of your expenses, such as bank statements, bills, and receipts. Having everything in one spot will make the budgeting process much easier.

List All Income

Now that you have your financial information together, list all your income sources. This includes your regular salary and any additional income from side jobs, investments, or commissions. Be conservative when estimating variable income. It’s better to underestimate and have extra money than to overestimate and fall short.

List Fixed Expenses

Next list your fixed expenses. These costs stay the same month after month like rent or mortgage payments, utilities, insurance and loan payments. Listing these first will give you a clear picture of the non-negotiable expenses in your budget.

Estimate Your Variable Expenses

Variable expenses can change from month to month and include things like groceries, transportation, entertainment, and dining out. To estimate these, review your past spending habits to get a realistic average. This will help you avoid underestimating and being caught off guard by surprise expenses.

Categorize Your Expenses

Categorizing your expenses will give you a clearer picture of where your money is going. Common categories include housing, transportation, food, entertainment and savings. This will help you see if certain areas of spending are out of whack with your income or financial goals.

Set Financial Goals

A budget isn’t just about tracking what you spend it’s also a tool to achieve your financial goals. Take some time to think about what you want to achieve financially short term and long term. Whether saving for a vacation, paying off debt or building a retirement fund setting clear goals will help you prioritize your spending and savings.

Compare Income to Expenses

Now it’s time to do the math. Add up your total income and compare it to your total expenses. If your expenses exceed your income it’s time to make some changes. This could mean cutting back on discretionary spending or finding ways to increase your income.

Make Changes

If your budget shows you’re spending more than you earn, don’t panic. This is your chance to make changes. Identify non-essential expenses that can be cut or eliminated. It might be as simple as eating out less often or canceling a subscription service you never use.

Track Your Spending

A budget isn’t a set-it-and-forget-it tool. To stay on track, you should regularly track your spending against it. You can use apps, spreadsheets, or budgeting software to make this easier. The more you track your spending, the more likely you are to stick to your budget.

Review Your Budget Monthly

At the end of each month take some time to review your budget. Did you stay within your spending limits? Make any necessary changes for the next month. This might mean adjusting your expense estimates or financial goals as your situation changes.

By following these steps, you’ll have a budget that helps you manage your daily finances and gets you on the path to your big financial goals. Be sure to contact us if you have any questions and check out The 4-Hour Bookkeeper, a book geared toward real estate professionals to help improve financial processes.