Budget like a Pro with 5 Simple Steps

A budget is the foundation to your financial success.  It sets the stage for everything else to follow.  From saving to investing.  One of my favorite financial guru’s, Dave Ramsey, said it best, “A budget is telling your money where to go instead of wondering where it went.”  After this post, you will be able to budget like a pro and no longer get to the end of the month wondering where your money went!

Budget like a Pro in 5 Simple Steps

Step 1: List Income

For most, net income is your gross income or salary minus taxes, health insurance, and pre-tax retirement contributions.  Net income is also known as your take home pay.  Make sure to include all of your sources of income like child support/alimony, dividend income, freelance or consulting income and more.

Special note: Don’t depend on irregular income like bonuses to be the soul of your budget.  What happens if you don’t receive that bonus you were expecting one month or quarter?

Step 2: Set a Savings Amount

Yes, you read that right.  Pay yourself first.  Set your savings dollar amount or percentage prior to identifying your expenses.  Experts estimate that you should save 10-15% of your income.  If you think you can’t afford to save, you are wrong!  You can’t afford not to save!  Haven’t been saving yet?  Start small.  Just $20 a month will add up over time.

Think you have nothing to save for?  Start with your emergency fund or 3-6 months of your net income.

Step 3: Identify Fixed Expenses

Fixed expenses are items that don’t change from month to month.  They typically include mortgage/rent, transportation (car payment), insurance (life/health/auto), cell phone bill, etc.  Fixed expenses are easy to budget for because they occur every month and are the same amount.

Although fixed expenses can change, it typically takes more time to change them.  For example, if you refinance your mortgage loan, your monthly payment can decrease significantly.  However, refinancing your mortgage loan won’t happen overnight.  Or, you can get a roommate or renter to cut back on your mortgage/rent expenses.  However, finding a dependable roommate that you are compatible with can take time as well.

Step 4: Identify Variable Expenses

Variable expenses are things that you have more control over.  They change from month to month.  Variable expenses include utility bills, entertainment, dining out, and shopping.

If your budget seems tight after saving and identifying fixed expenses, then it is time to cut back on variable expenses.  Trimming variable expenses may cause you to make multiple decisions throughout the month to cut back.  For example, if happy hour is a weekly activity with your coworkers, you may have to skip a few weeks or attend without ordering.  At the same time, be realistic! We are all human.  If you normally spend $250 on food a month, it wouldn’t be realistic to cut that down to $100 without making lifestyle changes.

Related: 9 Ways to Cut your Budget (when there is nothing left to cut)

Step 5: Review, Edit & Repeat

In order to truly budget like a pro, make sure you review what you have previously listed.  Is it time to reconsider or negotiate some of your fixed or variable expenses?  Are your home expenses eating half of your net income?  If so, check out these posts:

By cutting cable and negotiating my car insurance, alarm system, and internet bills, I have been able to save over $125 a month!  Although it may not seem like much, that is an extra $1500 that I am able to save in a year.  Small changes do matter.

Although a budget is the foundation to your financial success, it is always evolving.  For example, your budget as a college student probably looks a lot different than your budget post grad.  Also, your budget will inevitably change as you add (and/or subtract) members to your household like precious babies or aging college students.  I regularly review my budget ever few months.

 

Stay tuned for next weeks post regarding Budgeting Blunders: 5 Deadly Mistakes Made.  Subscribe below to get posts like this from Financially Fit & Fab delivered right to your email box!

 

Budget like a Pro in 5 Simple Steps (1)

Do you budget like a pro?  If so, how?  What tools do you use to budget like a pro?

38 comments

  1. Great tips! I have worked on my budget the last few years and did a lot of what you mentioned here. It helps a lot, although I find I do need to review it intermittently.

    1. It is definitely important to review your budget! I try to review my budget every few months. ๐Ÿ™‚

  2. I’m definitely going to sit down and do these things-my finances are out of control. Like, I don’t even know where it goes some times… I’ll have $200 in checking, and not spend anything for a week and suddenly I’m at $14. WTF. lol I make enough money that I shouldn’t be living like this.

    1. It happens to the best of us! That is why budgeting is so important. So you know where your money is going. ๐Ÿ™‚

  3. Loving these tips! We haven’t had cable in years (yay Google Chromecast) and just recently renegotiated our internet fees. There are so many ways to save money that people often overlook.

    1. You are right! Little ways of saving money def adds up over time. I just got rid of cable but I don’t even miss it and I am more productive (for the most part. lol).

  4. I am so bad about budgeting – I start out great and then fall off the wagon shortly after. I start out with great intentions!

  5. Love your tips especially negotiating bills. I look over all of our utilities with a fine tooth comb and I call for lower rates every season.

  6. Great tips as always!! I need to get back to doing my monthly budget. That had us all the way on track!

  7. Really helpful points. That being said, l do not budget like a pro. I tend to have the figures in my head, and just round up. My husband on the other hand, does it almost to the nearest penny, so it balances out in the end, thank goodness ๐Ÿ™‚

  8. Fantastic tips! I so wish students were taught budgeting 101 in school and didn’t have to learn it on their own.

  9. I had to save thisssssss! Needed this today! Being an entrepreneur and not having my back up from my 9-5… I’m drowning! This I needed to get my life financially in order! Thanks for the great tips!

  10. I’m so terrible at making a budget, but I’m even worse at sticking with it! Thanks for the tips, hopefully I can stick to it and build up my savings!

  11. I am soooo bad at budgeting and lord knows I need some help! These are awesome tips. I’m bookmarking this so I can come back in a couple of days to start getting my life together.

  12. These are some good practical tips. I have started small in terms of budgeting but it definitely will make a difference over time (provided I remain consistent of course lol)

  13. These are all great points. It is so important to list out every single expense if not you are just cheating your budget.

  14. My husband and I definitely live on a budget. If it’s not on our spreadsheet, it’s not happening unless we have enough in our petty cash or emergency fund to cover it. I’m also a big fan of Dave Ramsey. I used to listen to his show frequently and I’m looking forward to doing the freedom scream on air one of these days – lol! Great tips!

  15. Great tips! I was just thinking that I need to re-evaluate my budget this holiday weekend. My Mother used to say ‘If you fail to plan, plan to fail!’ So a budget is an essential plan that we all need.

    1. Great Kirstin! It is obviously a sign that Memorial Day weekend was also budgeting weekend if you were already thinking about it and then saw my post! ๐Ÿ™‚

  16. Starting a savings account is so important. I’m in my mid-twenties and just started a savings account a year ago. I definitely wish I had done it sooner.

  17. This is awesome! My wife and I have recently been using a Microsoft Excel budget template that incorporates some of these tips. It works great if you like to visually keep track of your monies. Thanks for another great article!

    1. Thanks for stopping by Ricky! Great that you and your wife are taking control of your finances. A Microsoft Excel spreadsheet is great to see all the money. I prefer budgeting apps like, Mint.com.

  18. I think it’s important to have a budget, but a person’s mindset has to shift in order to create/stick to it. It’s amazing how much you can save and do when you simply make the non-negotiable decision to do so ๐Ÿ™‚

  19. Financial Literacy was something I didn’t learn until I had to start applying for apartments. It’s still a tough today! Thank you for these tips!

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