Do you think starting a budget is hard? Do you procrastinate instead of making a budget? Have you ever ran from a room to avoid having a conversation about budgeting?

If so, you have come to the right place because this is not just any blog post – this is the ultimate blog post about how to create a budget. You know it is ultimate because we put a picture of Chuck Norris right here. And Chuck Norris doesn’t mess around.

That means it is time to get serious, cast aside your procrastination and fear, and conquer budgeting once and for all! This blog post will tell you exactly how to start your budget and how to succeed with it. It will help you devise a budget that works for YOU, based on what is going on in your life and the specific goals you’re working toward.

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I’ll share my best tips and guide you through the process so you too can become a master at budgeting. Here’s what we’ll cover:
Sounds good? Okay, let’s get started…

What Is a Budget?

A budget is your plan for how much you will spend each month (or week) and on what. That’s it. Pretty simple, right? The tricky part is making sure your budget is accurate and that it’s working for you. That’s what we’ll focus on now.

How to start your budget?

Record your daily spending with anything that's handy, whether it's with a pen and paper or an app on your smartphone.

The psychology behind a budget

A budget is more than a tool to help you manage your money effectively; it's also an important guidepost to indicate that you're moving in the right direction financially. Done well, a budget can help you prepare for unanticipated expenses, and afford you the luxury of spending your money on the things that are most important to you. 

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On the other hand, budgeting is a painful penny-pinching exercise that sucks the joy out of life. Just joking. But if you do see it this way, then you are bound to become frustrated and discouraged.There are real benefits to training yourself to think of budgeting as a constructive plan for spending wisely that encourages you to indulge now and then.

Here are 11 steps to make the process as smooth and painless as possible.

1. Decide to Start a Budget

If you are reading this article, chances are that you have already made the decision to begin a working budget. Congratulations! For many people, myself included, this is the hardest part. Read on to get started with next steps.

2. Know How Much You Have

If you have savings, checking accounts, investment accounts, or any other financial instruments, you will want to know how much money is in each account as well as the interest rates and expenses of each one. Make note of this information as it will become important in determining your net worth and the best use of your capital in the future.

3. Know How Much You Make

For some people, this is easier than others. Those on a salaried pay scale can easily find their monthly income. For hourly employees or those who work in a business where income may rise and fall unpredictably, this can be much more difficult. The most important consideration, regardless of how you earn your monthly income, is to determine the average monthly amount of income that you receive. A good way to do this, if you receive irregular income, is to average out the last 6 to 12 months of recurring income and use that figure. If you want to be extra conservative, you can choose the lowest monthly amount you have earned in the last year, which will hopefully provide you with a worst case scenario.

4. Know What You Owe

Determining your monthly recurring debt payments should be your next step. This should be fairly simple to do, as long as you have stopped incurring additional debt in the short term. If you haven’t been able to break your dependence on credit cards, that’s okay, as building a budget will act as a first step for your next financial priority which should be getting out of high interest consumer debt.

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To find out what your monthly recurring debt payments are, calculate the total amount owed on each debt account as well as the minimum monthly payment. This includes car loans, mortgages, credit card debt, student loans, and all other debt that your family pays on a monthly basis.

This will provide you with the first few line items in your budget, and will allow you to determine your net worth.

5. Determine Your Net Worth

Once you know how much money you have and how much you owe, you can easily determine your net worth. Just subtract what you owe from what you have, and you will derive a number. This number will tell you the value of your financial resources. For me, this number was an eye opener. When I built my first budget, I had a negative net worth. I assume this is fairly common in America, especially for young people just starting out.

6. Determine Your Average Recurring Monthly Expenses

This can be the hard part for many people. The best way to determine your monthly expenses is to make a stack of household expenses for a month. Keep your receipts, your utility bills, and any other expense that arises during a one month period, and divide these bills into categories. The categories can be as general or as specific as you want them to be. I keep my categories extremely general (automotive/household), whereas you may prefer specific itemized categories such as (car wash/electric bill). Either way works well, as long as you determine an average amount of expenses for each category.

7. Enter this Information into a Database

It used to be, if you had a budget, you had an old school paper ledger. Things have changed for the better for all of us new budgeters. Software programs like Microsoft Excel and online budgeting tools like Mint, You Need a Budget, and Mvelopes have made it much easier to take the results of your first few steps, and develop a highly adjustable and sustainable long term budget. I use Microsoft Excel for my own personal budget, because it allows a greater deal of flexibility than sites like Mint. However, many people swear by online budgeting sites, and whichever path you choose will ultimately help you build greater wealth and greatly help keep you out of financial trouble.

8. Look at the Bottom Line

After entering all of the above information, you will discover the most important number in your budgeting process – the bottom line. This number will tell you whether you are overspending or under-spending. Ideally, during this step you will find that you are living within your means, and maybe will even have a little left over on a monthly basis. On the flip side, you may determine you must make adjustments to your monthly expenses in order to live within your means.

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9. Make Adjustments Accordingly

If the bottom line of your budget proved that you are overspending your monthly income, you will come to the most difficult step – making cuts to your monthly expenses. There are tons of resources here on OnlineLivingBlog that will teach you to be smarter with the income you have, help you cut your recurring monthly expenses, and establish your financial boundaries for personal budget planning.

10. Adjust Categories Based on Reality

Life is full of surprises. Food gets more expensive, gas prices rise, and rent can get hiked when you least expect it. Each time you notice inflation creeping up on your expense categories, get a raise at work and begin to earn more money, or worse, suffer a financial setback like a pay cut or job loss, you must adjust your categorical expenses based on the realities of the world around you.

11. Pay Yourself First

Depending where you are in your budget, based on your bottom line, you may want to add a few extra line items to your monthly expenses. These may be monthly dispersal's to a savings account like Capital One 360 or Ally Bank, Roth IRA, 529 college savings plan, or other savings vehicle. Moving money into savings and treating it like a recurring expense will allow you to slowly build up your savings without feeling like you must make these deposits from what is left at the end of the month.

If you don’t have a budget, now’s the time to create one. By following the above 11 easy steps, you’ll be on your way to financial freedom and building wealth for the future.
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