Budgeting 101: Your Complete Guide to Building Your Budget

Do you struggle to save money? 

Are you a beginner saver with no idea where to start? 

Are you looking to pay down debt?

Do you even know where your money goes every month?

Welcome to Budgeting 101!

In a nutshell, budgeting is just assigning a job to every dollar you make. Sounds easy enough, right?

It really is! 

Let’s start from the beginning.

Welcome to Budgeting 101!

Step 1: What Is Your “Why”? 

Why do you want to build a budget? 

Look at those questions we started with – do you want to save money? Do you want to stop living paycheck to paycheck? Do you want to accomplish savings goals? Are you trying to get out of debt and need to find your first step? Or do you just want a better handle on your income and expenses? 

You’re probably thinking “Why does it matter?” Well, research shows that people are significantly more likely to achieve a goal when they’re emotionally invested. 

So give yourself a minute to reflect on your “Why?” 

Step 2: Add Up All of Your Income

Alright, here’s the part that makes you feel GOOD. 

Break out a notebook, open Excel, or just grab some printer paper and a pen. 

Add up ALL of your income AFTER taxes. Do you have normal wage income? Side hustle money? Alimony? Child support? Income from your investments or your business? Everything that hits your bank account every month counts- add it all up!

Add up all of your post-tax income for the whole year, then divide by 12. 

Now you have your Total Monthly Income. 

Step 3: Get Real About Your Expenses

Alright, here’s the hard part. It’s time to get real and honest with yourself about your expenses. 

Take a deep breath, open your bank account and credit card accounts, and start reviewing. 

Remember: if you usually live in cash, it might be harder to track your expenses, so you may be working with more approximate numbers at this point. 

Let’s start with Fixed Expenses. How much do you spend in an average month on: 

• Rent/mortgage? 
• Car payment?
• Minimum payments on your student loans? 
• Minimum payments on your credit cards? 
• Any subscriptions you use monthly (cable, Netflix, Hulu, subscription boxes)? 

How about Variable Expenses? How much do you spend in an average month on: 

• Utilities (gas, electric, water)?
• Gas for your car?
• Cell phone bill? 
• Groceries?
• Take out and restaurants? 
• Clothing? 
• Haircuts and other self-maintenance? 

Don’t worry if those numbers are higher than what you expected – we’ll work on cutting some discretionary expenses in a minute. 

Step 4: Check Your Calendar for Irregular Expenses

If you can, take a look at your Irregular Expenses for the past year. 

How much money do you usually spend during the year on:

• Birthdays? 
• Holidays? 
• Car expenses? 
• Travel and vacations? 
• Property taxes? 
• Health expenses? 

Remember, these expenses may not come regularly, but you’ll want a way to pay for them when they come up. 

Sum up these Irregular Expenses, then divide by 12 months so you know what your “Irregular Expenses” category looks like for a whole month. 

Step 5: Add Up All of Your Expenses and Subtract Them From Your Income

To get your Total Monthly Expenses, add together your Fixed Expenses, Variable Expenses, and Irregular Expenses from Step 3 and 4. 

Subtract your Total Monthly Expenses from your Total Monthly Income from Step 2. 

If this number is positive, your monthly income should be higher than your monthly expenses, so you should be saving money every month! 

If your number is closer to 0, you’re breaking even. There may be room to cut some more to increase that number- check out mynext step! 

If your number is negative, use the next step to see where you might be able to cut some discretionary expenses or decrease some of your regular expenses. If you’re not able to cut any more, consider finding ways to increase your income with a side hustle or another strategy for putting more money in your pocket every month. 

Remember, it might be hard seeing how much is leftover after you subtract your Total Monthly Expenses from your Total Monthly Income. That’s okay! 

You’re taking a new step on your personal finance journey, so don’t stress too much if it’s not perfect! 

Step 6: Find Places to Cut Discretionary Spending and Decrease Your Bills

Take a look at the list you’ve made. Are there places you can cut back?

Are you eating out 5 nights a week? Try cutting it back and save money by buying groceries instead. 

Is your cell phone bill high? Can you get a better plan that saves money?

You don’t have to cut EVERYTHING from your budget that you enjoy. That will make you feel deprived, and you’ll be more likely to overspend in the future. 

Cut back where it’s reasonable, then repeat step 5! 

Step 7: Stick to Your Budget for One Month, then Reevaluate

For one month, track your spending however you prefer. Track every item in a notebook, try a new budget spreadsheet, or try a new app, like Mint or You Need a Budget (YNAB). 

After your month is over, see where you were underbudget and overbudget. 

Don’t be afraid to reevaluate your budget after one month! 

If you found that you weren’t spending your full budget on clothing, but you were spending more than you planned on eating out, see if you can balance them. 

Remember, your budget is NOT a static plan. Your budget has to grow and change as you do- and that includes your income, your spending categories, and your expenses. Plan to hold yourself accountable to it on a regular basis. 

Remember: your budget won’t work unless you do! 

Are you ready to build your new budget? Share your plans in the comments! 

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