Budgeting 101: Building a Better Budget That Works for You

Ever feel like your money disappears faster than free samples at the grocery store? We’ve all been there. Figuring out where all your money goes is easier than you think.

Budgeting gets a bad rap, but it’s more than boring spreadsheets and crunching numbers late into the night. Budgeting helps guide you to your financial goals, and with resources like budgeting apps and GreenPath’s financial worksheets, it doesn’t have to feel like a chore. 

While benefits like stressing less about money, crushing your debt, and having a clear path to save for your dreams speak for themselves, figuring out where to start can be overwhelming and downright stressful. Don’t worry—we’ve got your back. In this article, we’ll teach you how to build and maintain a budget in 5 simple steps. 

And, once you’re a budgeting pro, check out the rest of our budgeting series for what to do after building your budget, adapting to a changing financial environment, and more!

Step One: Know Your Numbers

Figure out your net income, or your income after taxes and deductions are taken out. Your net income is the baseline of your budget. After all, you can’t spend money you don’t have!

Step Two: Separate Your Needs From Your Wants

Before you can list and categorize your expenses, you need to have a good understanding of what you spend money on. The easiest way to separate your needs from wants is to imagine you’re stranded on a desert island—what will help you survive? You’ll need shelter, food, water, stuff like that. These are your needs.

On the other hand, your wants are the zest of life—they make life more comfortable and fun, but they aren’t crucial to your survival. While things like enjoying a night out, a gym membership, or cool new car accessories are important, they should always come second to your needs. 

Step Three: List Your Expenses

Now that you have a general idea of what should go on your budget, let’s get specific. It’s time to List Your Expenses. 

You’ll want to break them down into three categories:

1. Fixed Monthly Expenses: These are your constants! Like a trusty sidekick, you can rest assured they will be there each month. Include expenses like:

• Rent,
• Utilities, and
• Car payments

2. Variable Monthly Expenses: You know you’ll spend money on these things, but the amount fluctuates. List things like:

• Groceries,
• Gas, and
• That irresistible sale at your favorite store

3. Other Expenses: The fun (and not-so-fun) stuff that pops up. Consider expenses like:

• Haircuts,
• Pet supplies,
• Gifts, and
• The gym membership you swear you’ll use more next month

List out all your expenses, and don’t be shy! The more specific you are, the easier it will be to target areas where you can cut back or realize you’re spending less on some things than you thought!

Step Four: Face Your Debt

Now that you know your numbers, have separated your needs from your wants, and listed your expenses, it’s time to Face Your Debt. 

Step one of Demolition Derby: Debt Edition is to Know What You Owe. List it out—credit cards, student loans, that concert ticket your sister bought you. Declutter your financial closet!

Step two: Create a Debt-Busting Plan and put it in motion! Here are a few different ways you can crush your debt:

• The Snowball Method: Start by paying off your smallest debt first. Once it’s paid off, roll that money into your next debt and add to it. Keep doing that until you’re debt-free! Like a snowball rolling down a hill, build up to paying your highest debt. 
• The Avalanche Method: Hit hard and say goodbye to your biggest debt first! Like The Snowball Method, work from one debt to the next, but instead of starting small, start big and work your way down. 
• Automate Your Payments: Set it and forget it! Paying a set amount every month? Automate your payments and have one less thing to worry about. 

Remember, becoming debt-free is a marathon, not a sprint. Be patient with yourself!

Step Five: Do the Math

Now, for the grand finale! You know your monthly income, you’ve listed your expenses, and you have a debt-busting plan ready to set in motion. Do the math—subtract all your expenses (including debt payments) from your income. Then, use what’s left to build yourself a secure financial future. 

Aka, it’s time to save! 

It can be daunting, but it doesn’t have to be! Start small—even saving $20 a month can grow into something amazing. Don’t forget to set money aside for special occasions throughout the year, such as holiday spending, birthdays, and vacations!

And just like that, your budget is born! Remember—this is a first draft. Your budget is a living document; like all living things, you should tend to it regularly. As you grow financially, your budget should, too. Because at EdiFi, we believe when you know more, you grow more!

Ready to put what you learned into action? Here are the brass tacks. If you’re confused about a step, scroll up and review the section above.

• Know Your Numbers: Calculate your monthly income after taxes.
• Separate Needs from Wants: What do you need to survive on a desert island, and what can you live without?
• List Your Expenses: Categorize them into fixed expenses, like rent and car payments, and variable expenses, like groceries and entertainment. Don't forget those sneaky annual expenses like holidays and birthdays!
• Face Your Debt: List all your debts, and choose the best methods to knock them out!
• Do The Math: Subtract your expenses (including debt payments) from your income—what’s left is your savings-boosting superpower!
• Revisit and Revise: Your budget is a living document; revisit and revise it regularly!

Feeling good about your budget? Check out the rest of our budgeting series for articles on what to do after building your budget, adapting to a changing financial environment, and more!