We all know that feeling of excitement when you finally get your paycheck. Whether it’s your first one or your hundredth, you start to imagine all the things that you can buy with your hard-earned money. Unfortunately, the reality is that no one can use their paycheck entirely on shopping and entertainment. In fact, many people may spend a large part of their income on necessities such as bills, rent, debt, or savings, leaving little left for them to use on enjoyment. When you find yourself juggling between the things you want to buy and the things that you need to put money toward, budgeting can become your greatest ally. To get you started, FFB has put together six steps that will help create the right monthly budget for you.

 

  1. Explore Your Current Situation

Before you can begin budgeting, it is important to calculate how much money you have coming in and how much is going out. To start, you should first determine your net income, or the amount of money that you make after taxes. Next, you can examine your regular, monthly spending habits, making a list of all your expenses from bills to coffee runs to TV subscriptions. Once you have this list created, you can categorize each cost as either a “need,” which includes any necessary expenses, or a “want,” which refers to any recreational spending.

 

  1. Start Planning

Now that you have an idea of how much money is available to you and what you will likely spend it on per month, you can start deciding what amounts you would like to dedicate toward your needs, wants, and savings. In most cases, you’ll want to grant a larger portion of your income to needs, since these are non-negotiable expenses. From here, you will be able to play with how much you’d like to spend on wants. As you’re calculating the amount spent on needs and wants, be sure to also factor in some share of income toward savings. Even if it is a smaller amount, the money that you put in savings can add up and help you create an emergency fund for unexpected expenses or get you closer toward a long-term financial goal such as buying a house or traveling.

 

  1. Consider Using an Expert Recommended Budget Plan

If you are having trouble deciding on the amount of income you’d like to allocate toward each spending category, you can follow one of the common, expert recommended budgeting plans. For instance, one of the most popular budgeting techniques is the 50/30/20 method. In this formula, 50% of one’s net income is dedicated to needs whereas 30% is granted toward wants and 20% is put away in savings. However, if you’d like to dedicate even more income toward your needs, you can look into the 70/20/10 plan. If you want to spend an even amount on both wants and savings, there is also the 60/20/20 method. Of course, these plans are simply recommendations, and you can feel free to test each out or create your own until you find the percentages that work best for your unique needs.

 

  1. Don’t Be Afraid of Change

It is not uncommon for your expenses to change from month-to-month, requiring you to reevaluate and edit your budgeting method. For instance, you may find yourself adding on new needs, wanting to increase your savings throughout the year, or receiving a raise. When changes to your income or spending habits occur, don’t be afraid to adjust the amounts given to each category. For instance, if you find that you will need more money for savings and/or needs one month, then you can cut back on some of your wants, such as cooking at home rather than going to a restaurant or holding back on buying the latest shoes from your favorite brand.

 

  1. Use Teamwork

If you share expenses with a roommate, family member, or romantic partner, then be sure to include them when planning your budget. Although talking about money may seem intimidating, it is beneficial to have those conversations regularly to ensure that you and your financial partner are on the same page when it comes to monthly spending. By creating an environment with open financial communication, you can also help reduce arguments and financial stress in the future. Even if you are managing your finances on your own, you can still work with a trusted friend or family member by having them hold you accountable. Their help may just prevent you from going over budget!

 

  1. Track Your Spending

With your budget made, now comes the hard part – sticking to it. The simplest way to ensure that you are staying on budget is by monitoring your spending. Whether you’d prefer to write down every purchase as soon as it happens or to review them every few weeks, tracking your spending can let you know ahead of time if you are sticking to the plan or if you’ve gone over and will need to readjust the numbers to get back on track. To help you track your spending and your budget, you can even make a budget spreadsheet or use a budgeting app. Plus, if you are still getting the urge to impulse buy while shopping, you can try using a shopping list or giving yourself a time limit within the store to avoid throwing off your budget with spontaneous purchases.

 

Learning to budget is an important step toward building healthy, financial habits. While everyone’s budget may look different depending on their situation, having money dedicated to necessary expenses, savings, and enjoyment can help you balance your financial responsibilities while preventing you from creating debt through overspending. With the right budget in place, you will not only create short-term financial stability, but financial stability for your future as well.