How to Make a Simple Budget Plan
How to Make a Simple Budget Plan
Making a budget shouldn’t be a long and complicated process. In this guide, I will show you how to make a simple budget plan. I have created a monthly budget planner template that you can use to get started. Now, you might be asking, “what is a budget plan?” and “why should I make a budget plan?”
1. What is a budget plan?
A budget plan is basically a summary of all your income and expenses through a period of time and comparing between your budgeted amount and your actual amount spent or earned.
2. Why should I make a budget plan?
A budget plan can be an essential tool to keep track of your personal finances and reach your financial goals. This is important when tackling debt, building emergency funds, or saving money to purchase assets in the future such as a house.
3. Choose a budget planning method or template
It is important to choose a budget planning method that is easy to use and understand so that you are more likely to follow through in the long term. It can be as simple as writing down your budget plan on a piece of paper or notebook. If you prefer using online tools, there are many free budgeting templates and applications that come with formulated calculations and fields. They typically include a wide range of income and expense categories that are already populated. You can also use my monthly budget plan excel template that I’ve created to help you get started.
4. Make a list of your monthly income and expenses
Once you have chosen the budget planning method that you’re comfortable with, start by making a list of your monthly income and expenses.
Income includes:
Expenses include:
5. Categorize your income and expenses and allocate your monthly budget.
For income, you can categorize your salary or wages by the number of paychecks you receive monthly (i.e. Paycheck #1, Paycheck #2) or your business income (if you are self-employed) by average weekly income and allocate those amounts as your estimated budget. You can also create your own allocation method. The most important thing is to make sure the budget is not extremely over-or-under-estimated.
For expenses, you can list by highest to lowest cost, or by fixed and variable expenses, or both. An example of fixed expense is rent where it remains constant throughout the lease term. An example of variable expense is utilities where cost can vary based on your daily or monthly usage.
6. Track your actual income and expenses throughout the month.
Once you have allocated your monthly budget, you can start tracking your income and expenses throughout the month. One way to do this is to gather your financial documents and electronic or paper bills and use them to record your spending throughout the month. You can save and collect your receipts, utilities bills, bank statements to use as references in the future. You don’t have to track the exact amount to the cent. Whole numbers are good enough..
7. Conclusion
The goal is to keep the budgeting plan as simple and easy as possible. You can get more detailed in the future once you have a better understanding of your money inflows and outflows. The most important things are consistency and mindfulness. They are key to understanding your personal finances and ultimately reaching your financial goals.
