Budgeting Made Simple-5 Easy Steps To Create Your Budget - Sapphire Planner (2024)

Do you struggle with trying to manage your money?

Not sure where to start or how to stay motivated along the way?

Well, I'm here to help!

I never used to budget, and, as you might expect, my finances were a hot mess! I was living paycheck to paycheck, just one minor emergency away from disaster.

But I finally took back control of my money with the most basic building block of personal finance, the budget.

It's not sexy, and it's not exciting, but if you do it right, it can be life-changing.

In this article, I'm sharing the 5 things I did to get my budget started in the hopes that it will inspire you to start yours as well!

I'm not a financial guru or someone who went to school for accounting. I'm just a woman who was tired of not being in control of her money and who figured out an easy way to get on track with personal finance.

I hope these easy-to-implement tips help you out!

Understanding the basics of budgeting

Before we jump in, it's a good idea to really understand what budgeting is and what it can do for you.

Don't get scared off by the idea of a budget. It doesn't have to be restrictive. In fact, once I created my budget, I actually felt more freedom around money because I knew what I actually had to spend!

Budgeting is an important tool used to manage your finances and helps you meet your financial goals.

It is simply setting a plan for spending and saving to achieve your desired outcome. Budgeting helps you understand where your money comes from and how it is spent, so you can make informed decisions about what to spend, save, and invest.

A budget also helps create financial guidelines that can help you reach short-term or long-term financial goals, such as saving for retirement, paying off debts, or increasing savings.

Budgeting can also help you understand your spending habits, increase financial literacy and awareness, reduce stress levels related to money matters, and ultimately allow you to make more informed decisions when it comes to managing your money.

Step 1-Identify your financial goals

Identifying financial goals can be daunting, but it is an important step on the path to financial freedom.

Setting aside time to do this will help ensure that you have the necessary resources to achieve your goals.

Begin by asking yourself questions such as, “What do I want my money to do for me?” and “What are the most important things I would like my money to accomplish?”

This will help you identify what your financial goals should be.

It can be helpful to think about any future plans or dreams you may have in life.

What would you like to do once retirement rolls around? Do you want to own property, continue working, travel the world, or do something else?

Your answers will provide insight into how much money you’ll need and when. Important information to consider when determining your financial goals.

You should also consider short-term needs, such as paying off debt or saving for a down payment on a house. Think about whether these needs fit into your larger goals and, if so, how they can be incorporated into your plan of action.

Additionally, take a look at any emergency funds you currently have saved up and decide if they need to be increased or maintained at current levels.

Creating a clear picture of what it is that you desire in life financially is key to identifying and setting achievable financial goals.

Take the time to sit down with yourself and/or with an experienced professional who can guide you through the process.

Doing so will help relieve financial stress and clarify where exactly you want your money journey to lead.

Step 2-Calculate your income and expenses

The first step in calculating your income and expenses is determining your total monthly income.

This includes all sources of income, such as wages or investment income.

Once you’ve determined the total amount of money that comes into your account each month, it’s time to move on to identifying and recording your expenses.

Begin by writing down all of the fixed costs, such as rent, utilities, insurance premiums, etc.

Then, list any expenses that change from month to month, such as groceries or recreation expenses.

You can do this on any piece of paper or spreadsheet. Or, to make your life easier, I've created a financial planner you can use to input your information. You can grab it below, and it's absolutely FREE!

Once you've tracked all your income and expenses, you'll have a better idea of how much you've actually got left over.

In order to really get a feel for your spending habits, though, you'll need to move on to the next step.

Step 3-Track your spending for a month

Tracking your spending for a month is an important step to understanding your financial habits, and it can lead to improved budgeting techniques in the future.

To track monthly spending, you should keep a detailed record of EVERYTHING you spend throughout the month.

You can use your free financial planner, an app, or simple pen and paper, however use something that you can be consistent with.

It's important to list not only all the bills you pay for the month but also every tiny thing you purchase too. Even if it's only a .75-cent bag of chips from the vending machine (although I think they're mostly more expensive than that now!), put it on your tracker.

It's important to include details like date, description of purchase/payment made, cost/amount paid, and category of expense. For example Payment Date: 5/30 – Groceries – $75 – Food & Drink Category.

This will give you a better picture of where your money is going each month and can indicate potential savings opportunities.

I did this before setting up my budget the first time and let me tell you, it was eye-opening! I had no idea I was spending so much money on makeup and skincare items that I really didn't even use that much!

Step 4-Create your budget

There are many different options for creating your budget, but one of the simplest is the 50/30/20 rule.

This system helps you budget your money into three categories: needs (50%), wants (30%), and savings/debt repayment (20%).

To create a budget with this rule in mind, start by calculating your total monthly income after taxes. Then, divide that number by three and allocate each third of your income for the corresponding category.

For your needs category, use 50% of your income to cover essential expenses like rent or mortgage payments, utilities bills, grocery items, and transportation costs.

Remember not to include luxury items like expensive restaurants or clothes in the needs category. These should be classified as wants.

After you know how much you can spend on necessities each month, calculate how much of your income should go towards wants – 30%.

Wants are non-essential but still important expenses such as entertainment, eating out, and vacations.

The last 20% should go towards savings and debt repayment.

While it may be tempting to spend more on wants than you can afford, having a healthy saving account is critical for financial stability.

Allocate some of this portion towards paying off existing debts and prioritize creating an emergency fund – ideally enough to cover 3-6 months worth of expenses.

That way if anything unexpected happens, you don't have to take on additional debt to cover it.

Following this budget is a great way to stay within your means while still allowing yourself some ‘fun money'.

However, if you're like me and you have some significant debt you want to pay off, you may need to adjust these percentages a bit to pay off your debt quicker.

It will all come down to your overall financial goals. But whatever path you choose, make sure you allow yourself some money for your wants. If you don't, you're liable to go overboard and start spending money you don't have.

Trust me, I speak from experience on that one!

Step 5-Review your budget regularly and adjust your goals

This step is going to be something that's an ongoing process for you as your life and your financial goals change.

For example, when I first started budgeting, I was focused on just trying to make ends meet and not spend more than I was making.

Once I got that down, I started focusing on paying off my debt. And once that's taken care of , I'll focus on boosting my savings and investments.

You'll want to gather together all your financial records and review them to make sure you're telling every last penny of your money where to go.

As you get raises, you'll want to do this to avoid income creep!

Compare your budgets and spending for the previous months and identify any areas where you can make adjustments.

For example, if you're spending more than you'd like on dining out or entertainment, cut back in those areas and add more to your debt payoff or savings categories.

Having month over month data is a fantastic way to analyze your spending patterns. At the end of the day, your budget is a tool that should work for you and your money.

So make sure you're setting it up in a way that will help you be successful in sticking with it.

When I first started my debt payoff journey, I was only allocating 20 dollars a paycheck for my ‘fun money'. And guess what happened? I went over that amount EVERY SINGLE MONTH!

This is a great example of your budget not working for you. After a couple months, I realized that needed to change because I still wanted to be able to go out with my friends sometimes.

So I bumped the number up to 50 dollars a paycheck and like magic, I was able to start sticking to my budget!

Now, your numbers will look different but this is why it's so important to review your budget regularly. If something isn't working for you, it's ok to change it! The only budgeting rule is not to spend more than you make.

And for most of us, when we have a good budget, that's completely achievable!