Creating a budget is one of the most important steps you can take to take control of your finances. But if you’re new to budgeting, the process can seem intimidating. The good news is, it doesn’t have to be complicated! A budget is simply a way to track your income, expenses, and savings goals so you can make informed decisions about your money.

At Barebones Finance, we believe in keeping things simple, especially when it comes to managing your money. Whether you’re trying to pay off debt, save for a big purchase, or just get a better handle on your finances, a budget is the foundation that will help you get there.

Here’s a straightforward guide to creating a budget that’s beginner-friendly, easy to follow, and adaptable to your unique financial situation.

Step 1: Set Your Financial Goals

Before you start crunching numbers, it’s important to know why you’re creating a budget. Your goals will help shape the way you allocate your money and give you motivation to stick to your plan.

Common financial goals include:

• Paying off credit card debt or student loans
• Saving for an emergency fund
• Building a down payment for a home
• Saving for retirement
• Building a vacation or holiday fund

Tip: Write down your goals and prioritize them. This will help you focus on what’s most important and keep you motivated along the way.

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Step 2: Calculate Your Monthly Income

Your budget is only as good as your income, so the first thing you need to do is figure out how much money is coming in each month. This might be straightforward if you have a salary or consistent wages. But if you have variable income (like freelance work or commission-based pay), you’ll need to calculate your average monthly income.

To calculate your monthly income:

• Look at your most recent paychecks and any additional income sources (side gigs, bonuses, etc.).
• If your income fluctuates, take an average of the last 3–6 months to get a more realistic picture.
• Be sure to include after-tax income (i.e., what you actually take home).

Example:

• Salary (after taxes): $2,500
• Side income: $500
• Total monthly income = $3,000

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Step 3: List Your Expenses

Now it’s time to list all your monthly expenses. This includes both fixed costs (like rent and utilities) and variable costs (like groceries and entertainment).

Types of expenses to include:

• Fixed Expenses: These are monthly costs that don’t change much, such as rent, mortgage, car payments, utilities, insurance premiums, subscriptions (Netflix, Spotify), etc.
• Variable Expenses: These costs can vary from month to month, like groceries, gas, dining out, entertainment, and other discretionary spending.

Tip: Be sure to also include irregular expenses that may not happen every month but are predictable, like annual insurance premiums or holiday gifts. You can divide these by 12 to account for them in your monthly budget.

Example:

• Rent: $1,000
• Utilities: $150
• Groceries: $250
• Gas: $100
• Dining out: $100
• Subscriptions (Netflix, gym): $50
• Insurance: $100

Total Expenses = $1,750

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Step 4: Categorize and Prioritize Your Spending

Now that you have a list of your expenses, it’s time to categorize them and prioritize them based on necessity.

• Must-Have Expenses: These are non-negotiable costs you must pay to live, such as rent, utilities, and transportation.
• Nice-to-Have Expenses: These are things like entertainment, eating out, or shopping that can be adjusted depending on your budget.

You might find areas where you can cut back to save more or allocate more money toward your goals. For example, if you’re trying to pay off debt, you may need to trim your dining-out budget or cut back on subscriptions.

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Step 5: Calculate the Difference: Income vs. Expenses

Now that you know your income and expenses, subtract your expenses from your income to see how much is left over at the end of the month.

Formula: Total Income – Total Expenses = Remaining Money

• If the result is positive: Great! You have some money left over. You can use this for savings or debt repayment.
• If the result is negative: You’ll need to either cut back on some expenses or find ways to increase your income (like working overtime, starting a side hustle, or selling unused items).

Example:

• Monthly income: $3,000
• Total expenses: $1,750
• Remaining money = $3,000 – $1,750 = $1,250

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Step 6: Allocate Your Remaining Money

Once you know how much money is left over, it’s time to allocate it to your financial goals. You can use the 50/30/20 rule as a general guideline to distribute your money:

• 50% for needs (rent, utilities, food, etc.)
• 30% for wants (entertainment, dining out, hobbies)
• 20% for savings and debt repayment (emergency fund, retirement, paying off debt)

Example:

• 50% for needs: $1,250
• 30% for wants: $750
• 20% for savings/debt: $500

If your goal is to pay off debt, you might allocate the entire 20% toward debt repayment. If you’re saving for an emergency fund or a vacation, use the 20% for savings.

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Step 7: Monitor and Adjust Your Budget Regularly

A budget isn’t a one-and-done task. It’s important to regularly track your spending and adjust your budget as necessary.

• Track your expenses: Use a budgeting app like Mint, You Need a Budget (YNAB), or even a simple spreadsheet to track your expenses and keep you accountable.
• Review your budget monthly: Life changes, and so should your budget. If you get a raise, lose a job, or have unexpected expenses, adjust your budget accordingly.

Tip: Don’t be afraid to tweak your categories or savings goals as your financial situation changes.

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Step 8: Stay Committed and Celebrate Wins

Budgeting is a long-term habit, and it can take time to get comfortable with it. Be patient with yourself, and celebrate small victories along the way, whether it’s paying off a credit card, saving for a vacation, or just sticking to your budget for a full month.

Remember, the goal of budgeting isn’t perfection—it’s progress. Each month you stick to your plan, you’ll be one step closer to financial security and achieving your financial goals.

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Final Thoughts: Take Control of Your Money

Creating a budget might feel overwhelming at first, but once you break it down into simple steps, it becomes much more manageable. A budget will give you control over your finances, help you save for the future, and keep you on track with your financial goals. The key is to start small, stay consistent, and adjust as you go.

At Barebones Finance, we believe budgeting doesn’t have to be complicated. By following these basic steps, you’ll be well on your way to financial stability and peace of mind. Good luck, and happy budgeting!

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Have questions about creating a budget? Leave a comment below and share your thoughts! We’d love to hear how you’re taking control of your finances.