Seven Steps to Creating a Budget

Jeremy Nachtigall • August 27, 2021

If you’ve never lived within a budget, the thought of placing limits on yourself can be unsettling. Just the thought of sitting down to go over your financials, reviewing your cash in and cash out, figuring out which expenses to reduce and estimating future cash flows and expenses can lead many of us to just do nothing. But if you “just do nothing” you may find yourself in an untenable situation which could and most likely will lead to greater problems over the long run.


In my practice as a Daily Money Manager, I have had many clients who simply have no idea what's coming in and where it goes. I create budgets for my clients who feel they need to get a handle on what’s going on. 

Here are 7 steps you can take in developing a budget and keeping you in control of your finances.

1. Work on a spreadsheet

If you’ve never done any data input on a spreadsheet, this may seem a little intimidating but it will keep you organized. I highly recommend it!

 

2. Identify the sources and amount of money you have coming in, on a monthly basis

You may be receiving a salary, a pension, or social security. These sources of income are easy to calculate on a per month basis because they are consistent. Some people may receive quarterly interest or dividend payments. If this is the case, determine your annual income from these sources and divide by 12 so you can get a per month number. A DMM will help you generate this number,  if you don't have a process in place for keeping track of your inflows

 

3. Track your spending

Make a list of fixed costs (electric, insurance, cable, etc.) and variable costs (entertainment, gifts, clothes, etc). Review your actual spending from your statements. When you do this you may find charges that you weren’t even aware of. You might be spending money on a service that you don't even use anymore. If you find these types of charges, add them up; you’ll be shocked at how much money is being wasted every year. Not everybody keeps receipts and financial statements are confusing. DMMs know what to look for and help their clients by sifting through these statements and isolating relevant information.

 

4. Set your goals

What’s the reason that you need to do this? Is there something that you are saving for? Maybe you know that your expenses are high and you just need to make cuts. Maybe there are expenses that you need to prepare for. Be clear about what you hope to achieve by creating a budget. 

 

5. Make a plan

By creating and living within a budget, you’ll have a clear picture of what your financial situation is. You’ll be able to know if you can add more money to a cash reserve or maybe make an investment; take the vacation you’ve been thinking about, or there may be some other large expense on the horizon that you’ll need to prepare for.

 

6. Adjust your habits if necessary

You may have to reduce your spending across the board. Is your internet provider offering a lower cost option? Are you on the right cell phone plan? Are there personal care services you can spend less money on? Maybe instead of getting season tickets to the theater, you’ll purchase tickets individually. Don’t fear! These small adjustments in your spending can have a large and positive impact on your overall financial picture.

 

7. Keep checking in

Budgets are fluid and can change with changes in income, expenses, wants, and needs. This is where the spreadsheet really helps. If you know how to use formulas in a spreadsheet, adjusting numbers is very easy. A Daily Money Manager who is skilled in developing this type of planning document can help.

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