Creating a budget is rarely at the top of people’s agendas. But, it’s a necessary step if you want to reach financial security.
Not matter what your financial situation looks like, it’s important to make a household budget which is aligned with your financial goals. Whether you want to stop living paycheck to paycheck, pay off credit card debt, or build an emergency savings fund, creating a budget can help you do this.
Now is the perfect time to take a moment and determine your financial goals for this year. By planning ahead, this can help you be more successful in sticking to your budget.
If you’re ready to get started on your journey toward reaching financial security, here are 5 things to do before creating a budget!
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Table of Contents
1. Find your WHY
If you want to be successful with your budget, it’s important to find your WHY. Knowing your WHY is the essential first step in figuring out how to achieve the goals which excite you.
Identifying your WHY can also help you stay motivated and take the risks you need to get ahead. For example, if your goal is to pay off credit card debt, knowing WHY you’re making temporary spending cuts can make it easier for you to be successful.
Here are a couple of things you can do to help you find your WHY:
Make a list of things you love doing
Each of us is unique. Maybe you enjoy spending time with family and friends, or working on a hobby, or traveling, or your job. Your WHY can also be a person. Maybe your why is your partner, your child, your parent(s), your sibling, and so on.
Organize your priorities
Now that you’ve created your list, it’s time to refine and organize your priorities. Look at your list and for each item (or person), ask yourself why you love it.
Why is it important to have in your life? You’ll find that by answering these questions, you’ll discover what’s really important to you. This will help you refine your list and put your priorities at the top.
2. Identify your goals
How and what you budget is all dependent on your goals. I recommend creating both short-term and long-term goals. This will help you create a more complete picture for your financial goals.
Short-term goals are ones you’d like to accomplish within six months, such as saving enough money to purchase tickets to see your favorite band in concert. Medium-term goals are ones that can take a year to accomplish, such as saving for a vacation. Long-term goals are ones that will take more than one year to accomplish, such as saving enough money for a down payment on a house.
Your goals can be anything you want. Maybe you want to pay off credit card debt, or save money to purchase a car, or build an emergency fund. The more specific you can get, the easier it will be to break down your goals into manageable steps.
To help you organize your goals, you can use my Financial Goals worksheet, which is available in my Budget Binder Printables package. Or you can grab a notebook and make a list of your short-term, medium-term, and long-term goals.
3. Determine how much money you need to save
Once you’ve identified your goals, you’ll need to determine exactly how much money you need to save. For example, if you want to build a $1,000 emergency fund within five months, this means you will need to save $200 per month. To break this down further, you’ll need to save $50 per week.
Knowing how much money you need to save on a weekly, monthly, or yearly basis, can help you create a budget which reflects your savings goals.
I recommend writing down this amount next to your specific goal. You can easily do this on my Financial Goals worksheet, or you can create your own chart to show this.
When you know how much money you need to save, you can lower your expenses until you reach your monthly savings goal. If lowering your monthly expenses is not feasible right now, you may want to consider finding ways to increase your income. From my own experience, making temporary sacrifices with my spending and increasing my income helped me reach my financial goals faster.
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4. Understand your current financial situation
If you want to reach your financial goals, you need to have an accurate picture of your current circ*mstances. This includes knowing the following:
How much money you actually make
What is your take-home pay each month? Whether you get paid once per month, bi-weekly or earn irregular income, you need to know how much money you’re bringing home. You can use my Income Trackerworksheet to help you do this. It’s available in my Budget Binder Printables package.
Your current expenses
Before creating your budget, you need to know what your current expenses are. This includes both your fixed and variable expenses.
To figure this out, you can look up your previous bank statements and see what you spent. If you’re new to budgeting, you can use my Tracking Expensesworksheet to keep track of all your monthly expenses. It’s available in my Budget Binder Printables package.
Once you know what your current expenses are, you’ll want to individually review each expense. Then you can decide whether this expense is necessary, or can it be reduced, or eliminated. For example, I recently reviewed all my monthly expenses. I called my cell phone provider to see if they were offering any promotions, I got rid of cable, and I negotiated a new price for my monthly internet. This took some time, but it was worth the effort because I saved a lot of money.
Handling unexpected expenses
Unfortunately unexpected expenses can and do happen. However, this doesn’t mean that we can’t plan ahead for these surprise costs. Each time I get paid, I like to automatically transfer money to my emergency fund. I use my Monthly Savings Tracker worksheet to organize and keep track of my savings. This worksheet is available in my Budget Binder Printables package.
For example, when my boyfriend and I moved into our apartment earlier this year, the kitchen fridge was old. We knew it needed to get replaced within the next year, so we have been setting aside money each week to go towards buying a new fridge. The money we set aside each week is reflected in our monthly budget.
Who else is a decision maker in your finances?
A budget created for a single person will look very different than a budget created with a spouse or a family. If there are other decision makers in your household, you’ll want to consider them when creating a budget. You can go over these same questions with them, which can help you identify each other’s goals. Perhaps you’ll have shared goals which you can both work towards.
5. Staying on track
Your budget should be easy to use and manage. Having the right tools can help you create a budget with ease. I am a big fan using printable worksheets to organize my finances. This is much easier than trying to understand complex software.
One of the best ways to stay on track and actually stick to your budget is to keep it realistic. If you make a plan to cut out 90% of your entertainment budget, you’re going to feel deprived and give up quickly. Take baby steps.
If you’re new to budgeting, you’ll want to focus on mastering one budget category at a time. Which area of your monthly variable spending is eating up most of your income? For many people, this is groceries, eating out, clothing, or entertainment costs.
Pick a category and aim to reduce your spending in that area. For example, if eating out is taking a big dent out of your income, you can try to reduce your spending in this category by 10% or more. Choose an amount you feel comfortable with right now. Then after some time and success, you can further reduce your spending.
Once you feel that you’ve mastered this category, you can move onto reducing your spending in the next area of your budget. This can help you gain more control and confidence over your finances.
Having a budget can help put you and your family on a strong financial path for the future. By following these 5 steps, you can build the right foundation for creating a successful budget.
Live the life you’ve always imagined with the right tool at your fingertips. The Budget Planner can help you get there.
These printables were hand-crafted to help you save time when organizing your finances, stop living paycheck to paycheck, save more money, pay off debt fast, and more! Use these functional sheets to create a realistic budget tailored to your specific needs and goals.
You can learn more about the Budget Binder here.
