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Rachel Hartman

Rachel Hartman

December 23, 2014

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How to Make a Budget

If you’re like me, you hear the word “budget” and think “ugh.” Who wants to skip the Starbucks or eat home every night? But budgets don’t have to be a bad thing—especially if creating one means you can finally leave a job you hate and start your own business. Here, steps to getting started.

Figure out your income. First, the easy part: Take a look at how much you rake in each month. Look at your paycheck or checking account statement. Add in any extra cash you bring in. And congratulate yourself—you work hard for that moola!

Track expenses. Now the hard part: figuring out where it all goes. Each month, you probably spend part of your check on housing or rent. Another healthy chunk goes to utilities, car payments, school loans, and credit-card bills. Food, clothes, gym memberships, and entertainment eat up the rest. Thinking about all of your expenses at once can be overwhelming. To break it up, try keeping track of them for one full month. Every day, write down what you bought and how much it cost. (To simplify it further, keep a notebook on your nightstand.) At the end of each day, jot down your purchases. If you want something more elaborate, make an Excel chart or try software like Quicken.

Set Limits. You’ll probably be surprised at where your money lands. Daily late-afternoon latte fixes can add up fast, as can lunches on the go. These things are fine if they’re not breaking the bank. But if you’re behind on your bills, it’s time to make some adjustments. Rather than eating out, bring lunch to the office some days. Don’t make drastic changes (no need to start growing your own vegetables or anything). If you start small, it’ll be easier to stick with.

Put it on paper. Once you understand where your money goes, you’re ready to draw up a budget. In Excel or a budgeting software program (or that trusty notebook), write down different categories. Start with the obvious ones: rent, loan payments, phone bill, etc. Then add in the extras like entertainment and clothes. Use your list of monthly purchases as a guide. Estimate how much you’ll need for each category. Then add up all the expenses. Make sure the total amount does not exceed your income.

Pay off your debt—then start saving. Putting a portion of your salary in a
savings or money-market account is important, but when you’re starting out, you may have other bills hanging over your head. Begin by paying off any nagging credit-card debt. Consolidate any leftover school loans. Once you have those under wraps, try placing 10% of your income in savings each month. Have it withdrawn automatically from your checking account to make it easier.

Evaluate. After following your new budget for a month, it’s time to grade yourself. Sit down and look over your expenses. See where your money went and how it compares to your estimates. Make any changes that you need to. Then try out the new plan for another month. Don’t be surprised if it takes a few months to figure out a budget that works for you. Eventually, you’ll feel comfortable with what you’ve set up. And don’t be too hard on yourself. Allow occasional splurges and treats throughout the year. Ultimately, a budget should serve as a financial guide—not an ultimatum.