5 Easy Steps to Creating a Simple Budget

Create a Simple Budget

Do you want to create a simple budget but just can’t seem to get started? 

Don’t we all! 

Lucky for you, this article walks you through 5 easy steps to creating a simple budget.

No matter what stage in your financial journey you’re in, a good budget is a tool that will be useful many, many times over. A good budget can also mean the difference between making ends meet and meeting your end!

I personally LOVE, LOVE, LOVE creating budgets. If I had the time, I’d create a budget for every single financial situation in my life! Yeah, yeah, I know that’s a bit dramatic…but that’s me. I, however, understand that many, if not most, people are not quite as fond of budgeting as I am. (Gasp!) 

No matter how fond, or not so fond, of budgeting you are, it’s just something you’ll need to do as you navigate your road to building generational wealth.

But, as always, I’m here to help!

Let’s get into the details.

STEP 1 – Identify all sources of income

This step can be as detailed as you’d like, but ultimately you will need to identify all of your sources of income, and when you’ll be paid from those sources. 

Sources of income include any jobs, investments, or passive income that you receive. When identifying the amount you earn from each of these sources, be sure to specifically capture your net, or “take home,” pay. Net pay is your pay after taxes and deductions.

If you’re paid hourly, and the number of hours you work on a weekly basis changes then you’ll need to make some assumptions on the average number of hours you’d work during the month. 

I would suggest using the past weeks that you’ve worked as your baseline. This will help ensure you’re using a realistic estimate.

Once you’ve identified all income sources, you’ll need to identify the timing of when you are paid. Timing your pay is very important when creating a budget because income will mostly be used toward paying monthly bills and you’ll need to make sure you have earned enough money to pay bills on time. 

Also, timing is important when determining the impact of last week’s hours worked on paychecks you’ll be receiving in the coming weeks. 

So, what does that mean? Many companies withhold your first paycheck when you start a job, which could mean holding the first week, two weeks, or maybe even a month’s worth of pay! As you continue to work for the company, your paychecks will always reflect that lag. Below is an example for more clarification.

Example: If you are paid weekly, and your company held the very first week of pay and didn’t pay you until after your second week of work was completed, then your first paycheck would reflect the very first week that you worked. The following paycheck would reflect week two’s work. 

This is important when you are an hourly employee and your hours worked fluctuate every week. Your budget needs to account for these changes so you’ll know how much money you can contribute to bills from each paycheck. 

STEP 2 – Create budget expense categories

The second step in creating an easy budget is to make a list of your expenses. This step should be detailed enough for your to follow and track easily. For some people that means listing out the pack of gum they buy every day, and for others, that pack of gum might go into an “other” category.

Whatever you choose, just be sure it makes sense for you and works for you. 

I would personally suggest listing EVERY.SINGLE.EXPENSE from your mortgage or rent payment to food to your Netflix subscription…EVERYTHING. It may seem like overkill, but trust me, if you don’t identify all of your expenses in this way, you could end every month wondering why you can’t stay on target with your budget. 

To take this a step further, every expense needs a category. For example, your mortgage or rent payment would go into a Housing category, and your Netflix subscription and gym membership would go under Subscriptions. This will come in handy once you start tracking your expenses each month – but we’ll discuss that in more detail below. 

Once all of your expenses are listed and categorized, go back through the list and note the due dates for each expense. For expenses that may not have an exact due date, such as groceries and gas for your car, I would suggest setting the “due date” as your paycheck date. 

Be sure to research the exact date and grace periods for ALL of your expenses, where applicable. This will help map out when you’ll have the money to pay for those expenses when we get to Step 4 below. 

STEP 3 – Set targets for each budget category

So, why do we need targets? 

Creating targets helps to define your budget plan. Yes, you need to understand your expenses and make sure you have enough money to pay for them. 

But what if you’re overspending in a certain category? What if you have a substantial amount of debt and want to accelerate your debt payoff? Then you’ll need to set targets for your expense categories to make sure you can stay within your budget.

For example, let’s say you have a credit card with a $4000 balance and you’ve been paying the minimum balance on it every month. Based on your credit card statement, you know that by only paying the minimum balance you won’t pay off your balance in full for several years. But now you’ve decided you want to pay off the card sooner. So, you’ll need to budget for the larger payment toward your credit card instead of the minimum payment.

As a guide, you can also use a broader approach as you set your budget category targets. One approach to use when setting your budget category topics is the 50/30/20 Rule. The rule basically suggests structuring your budget like this:

50% goes to needs

30% goes to wants

20& goes to savings

I actually wish I would have known about this rule when I was first learning to budget. Going through the process of creating a budget can seem very overwhelming when you don’t know what you don’t know. 

Following the 50/30/20 rule won’t necessarily tell you exactly how to create your budget, but it will give you a guide as to how you should spread your money around.

Whatever amounts you choose to set targets at for your categories just be sure you can still meet your short-term and long-term financial goals as you navigate your budget.

Budget Calendar Planning

STEP 4 – Create a budget calendar

Did you ever play those matching games as a kid? You know, the ones where you would match the two squares or the two blue objects? Yup, I went back that far, to something so simple because that is exactly how simple this process can be. 
Step four is literally your opportunity to match the income sources you identified in Step 1 with the expenses and due dates you listed in Step 2.

The ultimate goal here is to pay for an expense using money from the paycheck you receive prior to the expense being due. 

As you will find, there are some expenses due on the day you would receive the paycheck. In those cases, you would need to use money from the prior paycheck to pay for that expense. Give yourself at least three days to get the money to the company you’re paying.

STEP 5 – Track your progress and make adjustments if needed

Now for the finale. Tracking your expenses, and being realistic about those expenses, can be the hardest step of all. However, this process can be the most eye-opening. 

Realistically tracking your expenses will take discipline. 

The key here is to be REALISTIC. This is critical because it’s natural to think you can omit certain expenses because they don’t seem large enough, or they’re infrequent. The reality is that ALL expenses are important to track because they ALL use up available funds that you have. 

There are a couple of methods you can use to track expenses in a detailed and realistic way. For those of you who do well writing things down, carrying a small notepad to track your expense may be a good method to try. 

For those of you who’d prefer a digital method, there are a ton of apps you can use that will help you track your expenses. One I’ve used is Mint.com. Mint enables you to link all of your financial institutions into their app so you can see all of your transactions in one place. 

Also, don’t ignore what your current banking institution may offer for expense tracking options. Many of the online banking tools work very well and are easy to use.

Understanding how you’re spending your money will ultimately help you understand how you can proceed in your financial journey. If you don’t do well tracking expenses, then you’ll need to put more effort into the process in order to get a stable budgeting system in place. On the other hand, if you do well with tracking expenses, then you may be able to focus your attention on another phase of your financial journey, like savings or debt reduction. 

Let’s review the 5 Steps to Creating a Simple Budget

5 Easy Steps to Creating a Simple Budget:

  • STEP 1 – Identify all sources of income and how they’re paid to you.
  • STEP 2 – Make a list of all of your expenses and due dates.
  • STEP 3 – Set Targets Using the 50/30/20 Rule
  • STEP 4 – Create a Budget Calendar 
  • STEP 5 – Track your progress and make adjustments if needed.

Using these 5 easy steps you will be well on your way to creating and managing a well-constructed and easy budget. Remember, your budget should be constructed to best serve YOUR personal financial needs and goals. Once you have a good budgeting process in place, you’ll be one step closer to building generational wealth. Happy budgeting!

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Krystal Norwood-Morales, MBA, CFEI

Krystal is a Certified Financial Education Instructor and founder of Wild About Wealth, LLC. As a financial literacy advocate, she writes posts geared toward helping others improve their financial education and build generational wealth.

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Krystal Norwood-Morales, MBA, CFEI

Personal finance blogger

As a certified financial education instructor and financial literacy advocate, my mission is to teach young adults how to build generational through financial education. So let’s get WILD about WEALTH!

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