3 Steps to Complete Before Your 1st Budget

Introduction:

There are three things that you need to do in order to create your first budget. Before we talk about that, let’s talk about the goal of creating a budget. The goal of your budget is to identify how your income will be spent. In its simplest form it’s a plan for how you intend to spend your money. This gives you a clear idea of where your money is going and allows you to be able to make changes as necessary. So keep that in mind as we walk through the three main steps necessary before creating that first budget.

Step 1

The first step you want to take towards building your budget is to gather your important statements such as bank account statements or credit cards statements. I prefer to download them as a csv file from the website. However if you prefer to print them out you can. The next part of the process may take a little longer if you decide to print them out. You will use the statements to evaluate where you are currently spending your money which takes you to the next step.

Step 2

The next step is to identify how you have been spending your money and look for areas where you could be over spending. Go through your statements labeling your purchases. For example, charges for fast food purchases may be titled restaurant. Payments to your landlord may be titled rent expense. Continue to do this until all transactions have been accounted for. The first time I did this is when I realized I was spending hundreds of dollars per month eating out at fast food restaurants and on NSF fees. So right away I was able to see two areas for improvements to my budget.

Step 3

Finally it’s time to organize this data into usable information. Combine all of your like expenses and get an overall total of how much you have spent in each category. It is with this information that you can determine where you may be over spending or where you may be able to cut back. You can also use this information to determine if you are spending within the recommended income percentages for each expense category. If you’re unfamiliar with what those numbers are, you can download it from my resources tab at the top of the page. So those are the steps to take to prepare for creating your very first budget. See you soon with more tips!