It doesn’t matter if you’re a single mom or are married with children, learning to budget is essential for financial stability. When you first decide to start a budget, it may seem overwhelming, and you may not even know where to start. The process is actually relatively simple.

Before getting to the five tips on how to create a budget, let’s discuss exactly what a budget is and why it’s crucial.

What is a budget?

In simple terms, a budget is making a plan of how you will spend your money. This helps to make sure you have enough for your bills and have enough for any essential items you may need.

Budgets are essential for keeping your finances on track and making sure you do not overspend. They’re also a helpful way to keep you from getting into debt and helping you pay off any debt you currently have. Some people choose to do budgets for the year, while others prefer to plan monthly. No matter what your preference is, just start it today. 

Now that you know what a budget is and why you should have one, we can get into six simple steps you can take to create one. These tips aren’t complicated and are all pretty much things you probably already know. But going through them again is always a good reminder.

1.   Figure out your income

The first thing you need to do is find out exactly how much money you have coming in a month. If you get regular paychecks where taxes are deducted, use your net income instead of your gross. If your income varies month to month or you’re self-employed, use the least amount of income you have made in the last year. You’ll need to add all of your income together.

2.   Gather all of your expenses, both fixed and variable

Fixed expenses are those you typically pay the same each month like car payments, rent, internet, cell phone bills, credit cards, or any other bills you pay monthly. If you typically put the same amount into a savings account or pay off a debt, that is considered fixed. Once you gather this information, add it all together to get a total.

Variable expenses change from month to month, such as groceries, gas, gifts, etc. It is also essential that you figure in how to create an emergency fund since you never know when something unexpected will happen, like your water heater going out. If you have trouble figuring out these amounts, look at your last two to three months’ bank statements to get a general idea.

There are also seasonal expenses you need to figure out that need to be included in your budget. Examples of this are things like heating your home during the winter months, getting school supplies, new shoes, or annual membership. Make sure to add these in when you tally up your expenses.

3.    Total your monthly income and expenses

Once you have both your fixed and variable expenses figured out, you want to add the two of them together to determine an estimate on how much you spend monthly. And then subtract it from your income. Hopefully, your income is more than your expenses. If not, you’ll have to see where you can cut some costs. One tip is to look at cutting variable costs instead of fixed ones. It’s much easier to limit the number of times you go out to eat a month instead of not paying your electric bill.

There is actually a fixed expense you may be able to cut. Car insurance for many of us is one of our highest expenses and may be easy to reduce. One of the best things you can do to save money is to request different car insurance quotes so you can compare coverage and rates. You can also do this with other services like your cable company, internet providers, and cell phone companies.

4.  Separate needs & wants

Let’s be honest here a lot of times. Things we believe we need are actually just things we want badly. When making your budget, you need to get really honest with yourself about what is a need and what is a want. For example, you need food, but do you need the three candy bars you just put into your cart. For some of us, that answer may be a strong yes. 

5.  Start following your budget

Now that you’ve created your budget, it’s time to start using it. It’s not going to be easy, especially at first, and you’re probably going to make mistakes. Don’t worry about it. The longer you do it, the easier it will become.

Creating a budget isn’t easy, and it’s even harder to stick to it once it’s completed. But you can do it. The good news is that your budget is not set in stone, and you can make adjustments as needed.