Today I am going to break down the exact same budget our students are currently using to save on average $500 or more each month.
Listen on the Podcast
The 7 Steps to Creating a Budget
A recent study shows that nearly 80% of Americans are currently living paycheck to paycheck.
This isn’t because they aren’t making enough or that they’re spending too much — it’s because what gets measured gets managed.
On the show I will be breaking down the 7 steps below in detail and explain how they work and why each step is so important.
Step 1: Print off 90 days worth of bank statements
You are going to go back 90 days to get an average of your spending habits. Maybe last month was an off month, which is why you will look back three months and determine how much you spent and where it went.
Make sure to print off any bank statement where money either comes in (income) or goes out (expenses). This includes all checking accounts statements and credit card statements.
Step 2: Create categories and make monthly averages
Look through the past three months and create categories based on your spending. You’ll notice things like groceries, fuel, going out to eat, Amazon.com, shopping, and health care. There is no right or wrong when it comes to the categories — everyone is going to similar in some ways and different in other ways.
You will also notice a lot of your expenses are the same each month. This could be your rent/mortgage, subscription payments, gym memberships, car payments, credit card minimum payments, student loans and many other fixed amounts. Make sure to account for all of those as well.
Once you have your categories (no more than 20-30 max), then take your 3-month averages for each and move to step three.
Step 3: Enter categories and averages into budget
Transfer the amount you averaged from each category into your budget and also add in your monthly take-home pay. Remember, take-home pay is not the same as your income. Your income may be $80,000 per year but your take-home pay (what actually hits your checking account) is less.
Don’t get paid the same each month? If you are someone who is self-employed, works on commission, is an independent contractor, or does not have consistent monthly income, you’ll budget using the irregular income formula.
You can use the free budget template to download and get started.
Step 4: Zero out your budget
Your monthly take-home pay will show you how much you have to start with each month. From there you add up all of your average expenses and subtract from your income.
Take home pay — Expenses = Zero
I’ll explain in detail in the show (listen or watch above) what to do if your expenses are more than your income. Don’t worry, this is completely normal and happens every time.
Step 5: Follow the plan you created
Once you have created your budget, now it’s time to follow the plan you created. Remember, this isn’t a restrictive, no-fun budget.
This is the plan YOU created for your life and money.
Step 6: Make adjustments throughout the month
Month one isn’t going to be perfect. Month two will get a little better and month three will be smooth. Make adjustments throughout the month and within the next three months you will be a budgeting rock star!
Step 7: Rinse and repeat
This is the same budget I have been using since 2011. Every single month we sit down and create the budget, and then rinse and repeat.
In the first month it’s going to take an hour or more. Then month two it will take about 30 minutes. Fast forward to a few months down the road and you will spend less than 15 minutes per month creating a plan for your money.
This biggest raise you will receive in your working lifetime, is when you create and stick to a written plan for your money.
To see a full breakdown of all 7 steps, visit the post on the blog where I break down each one in detail.
Grab the Budget Templates Right Here
Now that you have a pretty good idea of how a budget works, I am going to give you the budget templates and walk you step-by-step with how to use them. If you have any questions at all, please post in the comments section below.
Good luck and congratulations on creating your budget!
Thanks so much for listening to the show and if you feel the content of this podcast was helpful, please subscribe to the podcast where you listen and leave a review!
Today’s show was brought to you by OneAZ Credit Union — my very own credit union I have been proud a member of since 2011.
If you live in Arizona and are looking for a large credit union with a local, customer-focused feel for your personal or business banking needs, look no further than OneAZ Credit Union.