How to Set up a Budget in 7 Steps

The number one rule when it comes to saving some cash is setting up a budget.  If you don’t have a budget, then how do you know how much you’ve got to spend on what.

Now I know many people go through life never sitting down to create a budget – but if you’re here on my blog, then there is no doubt you’re trying to find ways not only to make some extra cash but also how to save in the long run.

So in this post, I’m going to share my 10 tips on how to create a budget.  You can do this on a piece of paper, a notebook, on your computer – whatever you like.  But wherever you do create it, make sure it’s somewhere convenient to you – that you can easily access.

I like to create my budget in an excel document – in fact, I use the same document I created over 15 years ago!  Sure my circumstances have changed during that time, but by having it in Excel, I can quickly amend it as required.

Whatever you decide on – get your pen and paper or open a new Excel document and let’s get into it!

budgeting in easy steps

budgeting in easy steps

How to Set up a Budget in 7 Steps

Step 1:  Write Down Your Income

Ok, the first step is to write down how much money you earn each week, fortnight or month – however it is you get paid.  I prefer to work with weekly amounts.  In this amount only include guaranteed payments – if on the odd occasion you get an extra shift or your parents swing you some cash – leave this off!

Step 2: Write Down Your Essential Living Expenses

Next up, write down all your living expenses.  Here include all the things you have to spend money on – like food, gas, rent, electricity etc – things you have to pay to live.  If you decided to go weekly in step 1 – break these amounts down to a weekly amount.  For example, if you spend $2000 in rent per month, times this by 12 (12 months in a year) and then divide by 52 (52 weeks in a year).  So $461 per week.

Step 3: Write Down Your Discretionary Expenses

Now write down all the additional things you spend your cash on – like coffees, take out, TV subscriptions, clothes etc – all the things that aren’t necessary but nevertheless spend your money on them.  Again bring this down to a weekly amount.

Step 4:  Balance Your Expenses Against Your Income

Now you need to add up the amounts from steps two and three and take it away from the amount at step one.  How did you go?  Are you spending more than you earn, or do you have some money left over each week?

Step 5: Write Down Your Budget Goals

Now write down a list of any budget goals you might have – like save for a car, a house or a vacation – whatever the case may be.  Write down how much these things are, when you’d like to have them by and then work out how much you need to save for them each week.

Step 6: Make Decisions About Your Ongoing Expenses

This step is all about going over your expenses and working out which things you’re going to cut out entirely or cut down.  How much you cut down on your expenses will depend firstly on whether or not you’re overspending in the first place and secondly what your budget goals are.  This step may take a little while and it may hurt a little as you realize just how much you’re going to have to cut back on some things.

Step 7:  Write Your Formal Budget

This is the last step and the point that you get to write up your budget formally.  Write down all your expenses, how much you’re going to spend on each of them each week and how much you’re going to save for future goals each week.  Of course, the aim of this step is that your expenses and savings need to equal your weekly income.

And there you have it – now you have set yourself a budget.

I recommend every time you get paid, you check your budget and work out what money you need to put aside for future expenses or goals and what you have to spend between now and when you next get paid.

If this is your first budget, it may take a little getting used to.  But I promise over time you’ll refine it perfectly and will be well on your way spending within your means and meet some pretty awesome future goals.

If you’re looking for more ways to save money – check out my top 10 tips on how to save money in your day to day life – or to make some extra cash, check out my list of best survey sites that pay fast!