Have you ever had to determine the best ways to spend your money without regrets? Do you find yourself wondering where a huge sum of money disappeared? If you have been through these situations, you have been a victim of not knowing how to create a budget, the dos and don’ts, and the best ways of implementing it.

How to Create a Budget, Dos and Don’ts
How to Create a Budget, Dos and Don’ts

How to Create a Budget, Dos and Don’ts

This article will give you all the details you need about budgeting, what it is, and how to create a budget using various tools like Microsoft Excel, google spreadsheet, etc.

Make sure you read this exhaustively as it has lots of useful information for you.

What is a Budget?

Budgeting involves estimating revenue and expenses over a specified future period and typically involves periodic compilation and re-evaluation. Any entity, including governments, businesses, and individuals at any income level, can create budgets to allocate money.

To effectively manage monthly expenses, prepare for unforeseen events, and afford significant purchases without incurring debt, individuals must prioritise budgeting.

How to Create a Budget

Determine Your Income

To initiate the budgeting process, gain a clear understanding of your monthly income. Start by calculating your total or net income, encompassing salary, wages, bonuses, social security, and any additional income sources. Ensure that you compute your income post-tax to avoid being surprised by the actual amount entering your account.

Determine Your Current Spending

Understanding the destination of your funds is crucial. Begin by examining your most recent month’s bank and credit card statements, and creating a list of all your regular monthly expenses and bills – those that require payment each month.

Categorise Your Expenses

Categorise your budget by allocating specific amounts of money to different expense types. Review your list of expenses and classify them such as housing, transportation, food, and entertainment. Distinguish between fixed expenses, which remain relatively constant, and variable expenses, which may fluctuate.

Create A Plan

Once you’ve categorise your expenses and determined your monthly spending, assign a specific amount to each expense category. Prioritise allocating funds to essential categories, such as housing costs, utilities, and groceries, before distributing money to non-essential categories like shopping.

Financial experts advise a budget allocation strategy where 20% is saved, 50% is spent on essentials (such as food, housing, or insurance), and no more than 30% is spent on “wants.”

Monitor Your Progress and Stick To Your Budget

Monitor your monthly spending to ensure you stay within your budget. Regularly review your budget and adjust as needed to better align with your financial goals.

It’s important to recognise that a budget is not a rigid law governing every dollar in and out of your wallet. However, adhering to your budget demands discipline and commitment. Doing so can contribute to achieving financial stability and security over the long term. While a budget provides a framework, flexibility is key to adapting to changing circumstances and ensuring continued financial well-being.

How Do You Create a Budget For Beginners?

To create a budget for beginners, start with identifying all the sources of your income.

Once you determine your income and expenses, you can initiate the creation of a precise budget that allows you to comfortably address both your needs and wants. If you’re new to budgeting, a straightforward way to commence building your budget is by adhering to the 50/30/20 rule.

What is The 50-30-20 Rule?

Many budgeting philosophies exist, but the 50/30/20 rule stands out for its practicality, flexibility, and effectiveness. This rule divides your budget as follows:

  • 50% of your income for needs.
  • 30% of your income for wants.
  • 20% of your income for savings or debts.

If the 50/30/20 rule doesn’t align with your budgetary needs, feel free to make adjustments. You could prefer allocating an extra 5% of your “needs” to the “want” category, or you might choose to increase savings by 10%. This rule serves as a general guideline to kick-start your budgeting journey, allowing room for customisation based on your lifestyle.

How to Create a Budget in Excel

Generate Budget Headers

Upon launching Excel, input your budget’s column names. Consider formatting these headers in bold or italics for emphasis. Additionally, opt for a legible font like Times New Roman, Arial, or Calibri.

Input Expenses, Costs, and Income

Include your projected expenses or costs in the designated columns. It can be beneficial to record the date for each entry for reference. Enter notes as you populate each row instead of consolidating them at the end, aiding in recalling relevant details about a budget item.

Compute the Balance

In the realms of accounting and finance, a budget’s balance signifies the disparity between total anticipated revenue and total expenses. Utilise a formula to determine this value. Choose the field where you want the balance displayed, and input the formula into that field or the formula tab located just above the spreadsheet:

= Income – Cost`

Generate Visualisations

Navigate to the “Insert” tab on the top ribbon and access “Recommended charts.” Choose the chart or graph you wish to create, such as histograms, bar charts, line graphs, or pie charts. Alternatively, explore “Spark lines” for visualisation tools. A pie chart is a popular choice for illustrating budgets as it effectively displays budget items as part of a whole.                             

How to Create a Budget and Stick To It        

Utilise User-Friendly Tools:

Opt for budgeting software that is easy for you to comprehend. If the software involves complex maths or extensive data input, it may discourage you from staying consistent. Pin the app to your phone or browser’s home page to ensure it’s readily accessible every day.

Establish Accountability:

Initiate budgeting with a friend, participate in online communities for budget challenges, or hire a budget coach to set up a system for success. Being accountable to others enhances your commitment to sticking to your budgeting goals.

Embrace Cash Transactions:

While card payments offer convenience, the emotional impact of using cash is different. Consider making purchases with cash exclusively for a month and observe if it leads to savings. The tangible nature of cash transactions can foster a more conscious approach to spending.

Incorporate Savings as an Essential Expense:

While allocating 20% of income to savings may not be feasible for everyone, designating money for emergencies is crucial. Treat savings as a non-negotiable expense in your budget. When you regard savings as a mandatory payment, you are more likely to prioritise it. Leaving savings to chance often results in minimal or no savings.

Automate Processes When Possible:

Many bank apps offer the option to set up automatic transfers to savings accounts. If your income follows a regular schedule, consider automating these transfers. This eliminates the need for manual intervention, ensuring a seamless process of moving money into savings without constant monitoring.

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By Nayomi

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