How to Build Your First Budget
June 9, 2015
Living on your own for the first time comes with a whole new set of challenges you probably never knew existed. One of these adult responsibilities is budgeting. While getting a handle on your finances may not the most exciting part of your new life, making sure you have planned well enough to cover your monthly expenses can pay off—literally. Follow the five steps below to create your very first budget.
1. Determine Your Total Monthly Income
Add up the total amount of money you have coming in each month from your part-time job, freelance work, or any other source of expected income. To create an accurate and realistic budget you need to know how much money you’re working with.
2. List Your Fixed Expenses
Some of your monthly bills are typically the same every month. This includes expenses like your rent, utilities, car payment, car insurance, and phone bill. You don’t have much, if any, power to change them, so you’ll need to make sure you’re bringing in at least enough money to cover these costs.
3. List Your Variable Expenses
Variable expenses are those you directly manage, such as groceries, entertainment, clothing, and travel. Some of these costs are necessities, but they can easily change on a monthly basis. For example, if the volume of freelance requests you have is smaller than usual this month, you can’t reduce the cost of your rent, but you can pare down the amount of money you spend on clothing or eating out.
4. Make a Plan
Now that you know how much money you have coming in and out each month, it’s time to set spending limits for yourself. Decide how much money you’ll allow yourself to spend in each variable expense category to ensure you don’t go over-budget. If your calculations reveal that you don’t have enough money to manage your expenses, you may need to get a roommate, take on more hours at work or make other lifestyle adjustments to reduce your spending.
5. Find a Money Management System that Works
It’s easy to inadvertently go over-budget when you don’t have a reliable system in place to help you manage your funds. Sites like Mint and BudgetTracker offer free tools that can help you keep an eye on the state of your budget in an easy-to-use manner. Your bank may have similar tools on their website. You can never be too careful with your money, so find a budgeting system that works for you and stick to it.
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