I am so excited to jump head first into the world of budgets, finance, and side hustles. I am even more excited to share my journey with you. Mr. H and I do a fairly good job of knowing exactly where our money goes. However, we have set budgets before and been a bit lazy at following the parameters we outlined for ourselves. (What can I say, we are fortunate to live below our means, something that is extremely important to us!)
I have looked at our budget and have been setting up a budget for us to follow more closely. I have been looking at places to cut some costs that will allow us to put more money into our savings. (Or for Mr. H to invest, which is his new favorite thing to do.)
So maybe you’ve never created a budget before or maybe you just have trouble with it and need an idea of how to set one up. Well, I’m going to show you exactly how I create my spreadsheet to evaluate my budget with. This post is purely to discuss creating a budget. I’ll discuss in a later post my tricks and tips to start lowering expenses to up that bottom number for your extra income.
Step 1: Know Your Income
The first part of the budget is knowing what income you have and how much of it. This is the basis of the rest of your budget. Your income includes any money from your job, any side hustles, and any passive income you may receive. This will also include any income from your spouse or significant other if you are sharing all funds and expenses. (I indicated the difference between Mr. H and me on this document with #1 and #2.)
Step 2: Know Your Monthly Bills
The next step is knowing what bills you have that are generally a fixed number. This includes your mortgage/rent, utilities, car payments, insurance, etc. These expenses should have little variation every month and are the easiest to plan for. This is why they are listed second.
Step 3: Know Your Other Expenses
The third step is to know how much you spend on things that change every month. This includes things like groceries, eating out, money for fun outings, baby expenses, gas for your car, etc. Some of these may stay similar from month to month, but they have the ability to vary wildly and is why I like to list them separately. We’ll discuss this more in depth in a later post.
Step 4: Know Your Debts
You may be wondering why I include this in my budget. I find it important to know where and who I owe money to. Debts need to be paid. When I list out my debts, I can prioritize who to throw my extra cash at to pay off my debts faster.
Step 5: Know Your Net Worth (Savings and Retirement Accounts)
This allows you to know what you have in your bank account and where you’re sitting for retirement. (Yes, even at a ripe old age of 22 you should be considering your retirement.) This is also a great place to know where you can throw your extra cash when you’re trying to make a big purchase or if you just want your extra cash to make you more cash.
Step 6: Know How Much Extra Cash You Have (Or Don’t Have)
This is extremely important. It tells you whether or not you are living appropriately for the amount of income you have. If you have income left over, you can throw it at your debt or into savings/investments or towards your retirement. You have options and it’s great. If you don’t have any extra income or are negative, then you need to find places to cut down your expenses or find another source of income.
It may take some time to figure out exactly what you need in all of your columns on your budget. But I do find that my screen shots should help you cover most of your bases. If you’re lost of have any questions about creating your budget, ask in the comments below or contact me. I’m always happy to help!