Too often, people associate budgeting with restrictiveness. However, budgets can help us plan for our necessities and financial goals by setting comfortable spending limits. In other words, they’re an easy way to help optimize our money by having a plan.

We’ve broken the process down in 5 easy steps:

• Step 1: Review 3 months of spending history. This means getting out your bank statements with debit activity, credit card statements, and any other expenditures.
• Step 2: Group expenses into categories, covering all necessities and personal spending:
  • Necessities cover everything you absolutely need: groceries, housing, clothing, transportation costs, utilities, insurance, and planned prescriptions/medical care
  • Personal spending covers extras, like restaurants, coffee, and entertainment
  • A miscellaneous buffer can be built in for outlying expenses that pop up
• Step 3: Evaluate your spending:
  • If your spending exceeds take home pay, you’ll need to cut back somewhere
  • If your take home income exceeds spending, pay down debt or save more
• Step 4: Write down your monthly budget. An Excel spreadsheet works well, or you can use an app or online resource if you prefer.  
• Step 5: Review and update the budget throughout each month.

It may take a few months of budgeting to find your groove. If you find you are consistently going over budget, you can increase categories as needed if your financial situation allows. Overall, the budget should be a tool for you to understand and plan your finances. As financial goals come up (like buying a home or making a big purchase), you can even work those goals into your budget. 

For a print version of this information, check out our infographic.

Educational use only.