Building a Budget in Three Easy Steps

Learning how to be disciplined with money is difficult especially if you’re new to mindful spending. With a little planning, however, effective budgeting can be achieved no matter how foreign the concept of saving vs. spending is for you. A budget helps you⁴ determine how much you’re spending and how much you would like to spend in order to reach your financial goals. Luckily, creating a budget in three easy steps is not only possible, but it can also be fun. Try to keep things as simple as possible¹ when creating your budget, particularly if you’re new to the process. The easier it is to follow, the more likely you are to succeed. You may begin by simply tracking your spending before assessing it and building a budget. Any steps are good steps when working towards financial health for yourself and your family.

Step One: Assess Your Current Spending

Sticking to a budget starts with assessing your current spending. You can’t get where you want to go if you have no idea where you currently stand. We suggest using two to three months’ worth of transactions to get a good idea of your average spending. Separate each transaction into categories to see how much you're spending on fixed expenses that you cannot change or avoid and flexible expenses that could be cut or bulked up depending on your financial situation. Flexible expenses vary month to month and sometimes can be omitted altogether whereas fixed expenses are generally expected to stay the same, or close to the same, month after month. Use the following categories and examples of expenses as you create your assessment.

Budget Category Ideas

• Housing
• Insurance and Medical
• Transportation
• Food
• Basic Necessities
• Miscellaneous or Extra Spending
• Debt

Examples of Fixed Expenses

• Rent or Mortgage
• Renter’s or Homeowner’s Insurance
• Health/Life Insurance Premiums
• Prescriptions
• Car Payment
• Car Insurance
• Child Care/Child Support
• Tuition/Fees
• Loan Payment
• Cell Phone
• Internet & Cable/Subscriptions (some of this may fall under flexible expenses)
• Utilities (like electric, gas and water)

Examples of Flexible Expenses

• Groceries
• Restaurants/Meals Out
• Bank or Credit Card Fees
• Savings
• Gas or EV Charging for Vehicle
• Public Transportation/Taxis
• School Supplies/Costs
• Health/Hygiene Products
• Entertainment
• Clothing/Shoes
• Laundry

Once you’ve categorized your current spending habits, you’ll know whether or not you’re living within your means. During this research phase, make sure to write down the amount you bring in monthly (all income sources should be accounted for if they are monthly, and you count on them for your bill payments). You’ll want to create your budget to fit your pay periods. You can budget by paycheck date meaning that you will allot certain amounts of money to different bills and expenses depending on the date in the month and how much you expect your paycheck to be on payday. What does this look like? Let’s say you make $3,000 per month after taxes and your rent or mortgage payment is $1000. You are paid twice a month which means you make $1500 per paycheck. An option for budgeting by paycheck and keeping more funds available to you throughout the month for additional bills, food, and fun is to take $500 per paycheck out for rent.

Step Two: Write Out Your Budget Plan

Creating a budget that works starts with your assessment, and that review process is vital. You need to know where you spend the most, what you value the most, and where you have room for improvement. Simply keeping track of your expenses and paying attention to how much is being spent in different areas of your life can be revolutionary and create massive progress quickly. Once you’re ready to take your budgeting skills from budget basics to advanced budgeting, however, it’s time to create a budget plan. Effective budgeting can be accomplished in many ways, but a popular route to take is the 50/30/20 budget plan³ which allots 50% of your spending to needs, 30% to things you want but that are not vital to your existence (hello Target runs), and 20% of your funds are spent on debt repayment and savings. You can simply enter your income into this budget calculator² courtesy of Nerd Wallet which populates the appropriate amount for each category for you. Use this as a guideline as you divvy up your earnings and create your first budget.

Step Three: Create a Tracking Habit

You can use a spreadsheet and manually enter each transaction as you go through the month, or you can utilize the budgeting app of your choice. Some people even opt for cash and an envelope system although that has become increasingly harder to manage as many vendors no longer accept cash. The way you choose to track your spending is a personal choice, but make sure to choose something that is not only doable but something you can maintain long term. For me, tracking daily is the only way to go. Otherwise, I wind up with dozens of transactions, overspending in some categories, and a loss of will when it comes to sitting down to assess the budget. If you’d like to keep things super simple, a plain sheet of paper works. Write down your categories and the amount you have to spend on each category. Then divvy up the funds into needs, wants, and savings/debt. Create a plan for your spending and stick to it. Before heading to the store, glance at the budget and see how much you have left in that category to spend. You can track spending using your receipts or by looking at your bank account regularly. Many budgeting apps link to your account and help you automate this process, but there’s nothing quite like manually writing down how much you’ve spent to shock you into a budget mindset right from the beginning.

Sticking to a budget is important but not always easy. Money discipline is a habit that is formed with practice, patience, and a goal or two in mind. Being debt free might be your ultimate goal, or perhaps you’d like to travel more. Even the smallest budgeting changes⁵ like skipping the line at your favorite coffee shop and investing in a great coffee machine at home which will save you over time can add up to significant savings. No matter your motivation, creating money habits that you can be proud of and pass down to future generations is something you deserve. Get rolling by cracking open the bank account and taking a look. No matter how nervous that idea makes you, I can promise you that facing the situation head on and taking back your control will be incredibly empowering and ultimately worth it. As you work through your financial journey, CheckSmart is here to help you when times get tough. If you need an extra hand and payday is a little too far away, our Loan Experts can connect you with your SmartMatch loan to help you through. We’re here to help!