How to Make A Budget in 4 Steps

Money is a tool. Money allows you to do the things you want in life. Money also allows you to pay for the things you need like food and clothing.
Just as a manual helps you understand how to use a power tool, a budget helps you plan how to use your money. It’s much easier to know what you can afford if you have a plan and know where the money is coming from and where it’s going. If you’ve heard about budgets but don’t know how to make one, this post is for you.

Step #1 – Know What You Have

The first step to making any budget is to know what you have. In other words, this is your income. You want to know how much you make each month from your job or other income sources. If you don’t know how much you make, look at your recent paystubs to get an idea.

Your income is the foundation of your budget. This lets you know how much you have to work with each month. Your income may vary from month to month. That’s okay. Simply getting a general understanding of what you earn will provide enough information to get started with your budget.

Step #2 – Know What You Owe

Now that you know how much is coming in, it’s time to determine your what’s going out. You will have some fixed regular expenses, such as:

  • Rent / mortgage
  • Student loan payments
  • Cell phone / Internet bill
  • Utilities

You will also have some variable expenses, such as:

  • Groceries
  • Gas
  • Entertainment
  • Pets

Your situation will vary, but this gives you a good idea of what bills you have to pay, or what you need to set money aside for each month. Keeping your expenses lower than your income is vital to building a solid financial future.

Step #3 – Save for the Future

The beauty of a budget is its ability to help you save for your future. Look for expenses you can reduce or cut altogether. Then, take the savings and put it towards a long term savings goal or even your retirement. Once you have a budget, the idea of putting money away for savings becomes easier to visualize.

Some companies offer a discount on your monthly bill or loan payment if you do auto-pay from your checking account. You can also set up a recurring deposit into a savings account each month using online or mobile banking to make sure you save consistently.

Establishing these habits now will help you today and tomorrow as you look to do things like buy a house, get married, save for retirement and more. Knowing your budget is key to accomplishing all of these things.

Step #4 – Set Your Goals

An important question to ask yourself when making your budget should be – “What are my goals in life?” As simple as it may sound, an effective budget can help you reach those goals. As we mentioned earlier, money is a tool. Your budget is the guide and plan by which you use that tool. Craft your budget to accomplish what you want in life.

Make your budget your own. When you tailor it to what you want in life, it gives you the freedom to spend and save in the way you see fit – ultimately to help you effectively
reach your goals.

If you’re looking for a tool to help you make your budget, check out this free budget template from Four Points.

Regular Print and Complete budget (PDF)

Calculator budget