How Do You Make a Budget?
This is so basic you might overlook it: You have to know how much you spend each month versus how much you earn.Making and following a budget can be especially tricky during a transition period, like starting a new job or moving. Right after college, you might not have a stable monthly income, and a lot of budgeting advice probably doesn’t feel like it applies to you.
But you should figure out how to make a budget that works for you.
My favorite is envelope budgeting, because it lets you plan for your necessary expenses, debt repayment and savings, and then lets you do what you want with whatever’s leftover. So you don’t have to keep a detailed log of every burrito you buy.
You can use actual paper envelopes if you deal with a lot of actual paper cash — or you can make a digital envelope budget using an app or bank account that includes the feature.
Or you could simply create a spreadsheet budget and set a weekly money date for yourself (and your partner, family or housemates) to log spending and income and make a plan for the following week.
However you prefer to set it up, a budget should help you see in one place:
- Income. If you have a set salary, you can plan ahead for your after-tax monthly take-home pay. If you have an irregular income, creating a budget to track it can help you find a three-month or 12-month average you can use to plan ahead.
- Expenses. Tracking your recurring expenses, like housing, bills and food, lets you see how the amount compares with your income and could help you spot places to cut back. For example, your housing shouldn’t cost more than 30% of your income, and there are tons of ways.
- Spending. This is what typical budgeting apps show you: Where your money goes day to day. These are your everyday transactions, like eating out, shopping or entertainment. Track this at least when you first start budgeting to spot any trends and places you can cut back when money’s tight.
- Debt. Minimum loan and credit card payments fall into your expenses, because those are necessary monthly bills. Adding debt-specific categories gives you a productive place to funnel extra money each month, so you can pay debts down faster.
- Savings. Don’t forget to budget for saving money after college! If you build savings in around your income and expenses, it’s easy to find room to set a little aside each month.