Set your goals
What are your aspirations? Thinking about what you want now and down the road helps you form the foundation for your budget.
Set your budgeting goals around what's important to you. Use this budgeting guide to see how much money you're bringing in and how much needs to go out. What's left over can be used to help you meet your aspirations.
How to make a budget
Checking in on your household's monthly budget at least once a year is a smart practice. The discipline will help you balance income and expenses while putting money toward financial goals, such as saving for college or paying off debt.
Consider the following tips to help get you started.
Popular budgeting methods
Find an approach that works best for you. Here's how to make a budget two different ways:
- Zero-Based Budgeting: With this method, you assign every incoming dollar to a spending (or saving) category. The categories may cover current expenses or anticipated future expenses, such as car maintenance or holiday gifts.
- The Balanced Money Formula: This method asks you to categorize your spending into three categories: fixed costs, financial goals, and flexible spending. The categories should equal no more than 50%, 20%, and 30% of your monthly income, respectively.
Get started with budgeting
You may think there's a secret formula to budgeting the right way. Guess what? There's not. The equation is simple: Income — Expenses = Money for your goals.
Follow these steps to create a budget.
- Track all expenses for one month. Once you know where your money goes, you can adjust budget categories and future spending accordingly.
- Set financial goals. Whether you want to pay down debt, save more for retirement, or take a vacation — goals will help keep you accountable with your budget.
- Review and adjust as needed. Because income and expenses can vary from one month to the next, you should regularly review your budget to see if your budgeted amounts are too high or low.
- Use a budgeting tool. There are countless apps to help you manage your money. These tools may simplify budgeting, which may help you stick to it.
Your chapter 1 checklist
- Watch the What is a Budget? video
- Download the Budgeting 101 Worksheet
- Write down your aspirations
Simply put, goals help you attain those things you might aspire to have or do.