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Steps to Financial Wellness: Creating a Budget


budgetBudgets play a crucial role in promoting financial awareness, and they help you to facilitate more responsible money choices. Let’s take a look at how to create a budget and review some popular budgeting systems and how they work.

Create a Budget in 5 Easy Steps 

  • Track your spending and income. Designate a safe place to keep all of your financial documents, such as your account statements, bills and pay stubs. If these documents are all online, keep a digital copy in a folder on your computer.
  • Tally up your totals. Calculate the totals of your monthly expenses and all your streams of income. If your income exceeds your expenses, you’re in a good place. However, if your expenses exceed your income, or the numbers are too close for comfort, you’ll need to trim some discretionary expenses to make it through the month without falling into debt if an unforeseen big expense happens.
  • List your needs. Your needs include anything that is essential for living, such as rent or mortgage payments, savings, food and clothing. Needs always take priority in a budget. As you list each need, write down its corresponding cost. Sum up the total of your needs when you’ve finished.
  • List your wants. This includes anything that is not essential for living, such as entertainment costs, brand-name clothing and eating out. Here, too, note the monthly cost of each item on your list and add up the total when you’re done.
  • Assign dollar amounts to your expenses. Open a new spreadsheet and copy your list of expenses, starting with fixed-cost needs, then non fixed-cost needs, and finally, your wants. Assign an appropriate dollar amount for each of these costs, making sure the total does not exceed your estimated total for monthly expenses.
  • Review and adjust as necessary. You will likely need to adjust the amounts in each expense category at least once a year to keep your budget relevant. Likewise, you will hopefully be able to increase the amounts in the income column as you move upward in your career path or find additional income streams.

Budgeting systems

While every kind of budget involves tracking expenses and committing to a maximum spending amount each month, there are a wide range of budgeting systems to fit every kind of personality and money management style. Here are a few different options for budgeting that you can try.

  • The traditional budget uses the steps described above for weighing costs for needs and wants versus total income. After determining a number for each expense category, you’ll need to track your spending throughout the month to ensure you’re sticking to the plan. You can use a spreadsheet for this purpose, like the free ones from our partners at GreenPath. If you'd rather track your spending digitally, apps like Mint or You Need A Budget (YNAB) may be for you.
  • The money-envelope system works similarly, however, instead of simply committing to sticking to your spending amounts for each expense category, you’ll withdraw the amount you plan to spend on all non-fixed expenses in cash at the start of the month. Divide the cash into separate envelopes, using one for each of these expenses. Then, you can simply use cash from the appropriate envelope when making a purchase in that category.
  • The 50/30/20 budget requires more discipline, but it allows for more spending freedom. Set aside 50 percent of your income for your needs, 30 percent for wants, and the remaining 20 percent for savings. If 50 percent of your income covers all your monthly needs, this budget allows for more individual choices each month and less accounting and tracking of expenses.

A well-designed budget can provide you with a sense of financial security and freedom. When you stick to a budget, you’ll always know you have enough to get through the month and you’ll have money save for the future.

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