The Basics of Building a Budget

Building a personal budget is another vital step for your path toward financial stability. With an effective budget, you can then start to reallocate where your money is going. Being able to clearly see your expenses and income side by side is a very helpful tool and will assist you when you are trying to learn to manage your money more effectively.

The first step to creating a budget is to figure out what spreadsheet software you are going to use. I personally recommend Excel over google sheets, but everybody has their own preferences so choose whatever you are most comfortable with. Once you decide which software you are going to use, you’ll want to create a table similar to the one below.

The table above is a sample budget for someone whose take-home pay is $42,000 annually. We see the various expenses and where this sample's money is going. This table is quite basic but allows you to understand what a budget should look like. Being able to clearly see where your money is going is absolutely vital in order to achieve financial success. Simply thinking about where your money goes in your head isn’t enough to get a visualization of where your money is going. Analyzing a budget allows you to reconsider a lot of your expenses and reallocate some funds. In addition, it may inspire you to create more streams of income as well. Personally, I like to create a simple spreadsheet for every source of income that I have. Then I’ll later combine the information from each of those spreadsheets and create a larger budget that includes all more income streams and expenses. The way that you want to organize your budget is entirely up to you because ultimately you are the one who needs to be able to understand what it is saying and what further steps you may need to take to either reduce expenses or increase income.

I recommend making your budget very detailed; a detailed budget shows more information and will give you a better understanding of your financial situation. As you progress further in your life with your financial knowledge, you may also want to create budgets for investment projects, businesses, or specific ventures in your life. Making your budget neat and clear to read is just as important as the detailed descriptions. I like to add colors and bold some text in my budget to help me read it more efficiently.