Budgeting Breakdown | A 6 Step How-To Budgeting Checklist

Real talk.  Nobody enjoys reviewing their budget.

Even me, a financial educator that loves money, does not always want to look at or discuss budgeting. This is NORMAL! However, even though responsible money choices and tracking may not be something I always want to do, slacking on my finances isn’t an option. In order to stay on track, I have a 6 step, monthly budget review process. 

Because it can be overwhelming to look at a monthly task all at once, let's break it up. At the beginning of the month, focus on steps 1-4 listed below. At the end of the month, complete steps 5-6. To simplify it even more, use anexpense tracker, that makes completing steps 5-6 a breeze. 

But how do you start setting up a budget? I get this question a lot. Most people are unsure how or where to start. It can seem intimidating, but once you form a process and consistent habits, it’s very manageable.

Let's get into budgeting breakdown in 6-step how-to guide. Designed to help you build an effective personal monthly budget.

  

 

  

STEP 1: FINANCIAL STATEMENTS

Okay…Financial Statements. (Eep! What does this mean?!) The list above gives you a few of the various financial statements you need when you are preparing to set up your personal monthly budget. 

You’ll want all of these statements handy to start, so that you know your monthly payments and when bills are due. When you set up your budget, have a monthly calendar handy and write down your bill pay due dates. 

By writing down your due dates and the amounts owed, you can keep track of when things are due, how much you are paying for them and stay on top of your monthly budget as those items are paid. No late payments again!

Example of a Student Loan Statement:

  

STEP 2: INCOME SOURCES 

How do you get paid? Weekly, bi-weekly, monthly? Do you have multiple jobs or streams of income?  

Documenting how you earn your money and tracking it is an integral part of budgeting! It allows you to know exactly how much money you have to work with each month. 

If you are not reading your pay statements, I encourage you to start. Look at what money is being taken out. How much are you paying in taxes or contributing to medical coverage? I have found more errors than I can count, on pay statements for people we work with. Make sure you are checking your numbers and looking for any errors in your hourly pay, benefits, or taxes.

Every pay statement looks different. If you’ve worked for multiple companies, you might notice that one company has a different pay statement from another. All the information on your pay statement should be the same, it is simply how it is organized. 

Make sure to have one full month of pay statements in your hands when you start your budget. 

 

STEP 3 - MONTHLY EXPENSES

What are you responsible for paying every month? Think of anything and everything you pay for on a monthly basis, and then start a list! Take your time with this list—add to it as you remember things. Some things we do not pay for every month. If that is the case, keep your list handy and add to it as time goes on. 

Monthly expenses can vary! Below, are the two different types of expenses you might incur on a monthly basis. 

Fixed Expenses - These expenses will cost thesame amount of money every single month. Your rent is the best example of a fixed cost, it is the same amount of money month to month. When you use your monthly budget to account for your rent cost, yourestimated budget number should match youractual budget number.

Variable Expenses, these are the costs that change month-to-month. Groceries are a great example of a variable cost. Each time you go to the store, the final amount you owe at checkout is different. This is a variable cost, one that can fluctuate week-to-week/month-to-month.

When you are budgeting for a variable cost, look at what you’ve spent over the last three to four months in this category. Then, estimate your budget for this cost based on your previous pattern. If you are completely unsure how much a gas or groceries costs you every month, that is okay! Use your budget, estimate a number (educated estimate), and continue to watch and adjust this number month to month. 

Buffer the variable costs on your budget slightly, this will help when you first start your budget. Do not get discouraged if you overspend in a category. This happens! Work through what the overage was from and adjust your budget to fit how you are spending. 

By making adjustments and being flexible with your numbers, this process will help you determine how much that variable cost could fluctuate on a monthly basis. 

 

 

STEP 4 - SETUP THE “ESTIMATED” SECTION OF YOUR MONTHLY BUDGET 

 

At the beginning of the month, you will use steps 1 through 3 and set up your “estimated” costs or what you think you will spend in each category monthly. This will help you get a handle on how much you are spending, savings and where you might need to make adjustments to your budget based on your income. 

 

STEP 5 - COMPLETE THE “ACTUAL” SECTION OF YOUR MONTHLY BUDGET

At the end of the month, fill out the “actual” column of your budget. (What you actually spent in each category of your budget.)  

Now you have a direct comparison between what you “estimated” and what you “actually” spent for the month. 

Once your budget is fully complete, proceed to step 6. 

 

STEP 6 - REVIEW YOUR BUDGET, COMPARE YOUR SPENDING AND SET GOALS FOR THE NEXT MONTH

 

Your budget is complete! Now, it’s time to review your numbers. Write down your successes for the month—what areas of your budget did you do well? 

Write down your opportunities for next month. What changes will you make to your budget and how will those changes impact your financial goals?

Your budget is a tool to help you reach your financial goals, by using it monthly and setting aside time to review your numbers every month. You will improve your financial game and over time, meet your personal goals. 

 

Get the Ultimate Beginner Money Course to help you start setting up and building your budget. 

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