A Step-by-Step Guide to Creating a Budget 

^{By Bromwich+Smith Staff | 835 words | Reading Time: 4minutes and 10 seconds| Date: 2023/08/11}

Time after time, we talk about one of the simplest, most effective tools you can have when it comes to managing your finances. A budget. Having an up to date, accurate budget allows us to take control of our money, make informed decisions on how it is spent, and reach our financial goals.  

Review Your Current Financial Situation 

Before diving into budgeting, it's essential to have a clear understanding of what your current financial situation really is. This isn’t the time to make estimates, or to assume what your numbers look like. Set aside some time to properly prepare yourself. Start by gathering all relevant financial information, including your income, expenses, debts, and savings. Take a real look at you bank statements, bills, credit card statements, and any other financial records. This will help you to understand what is going into your bank account, as well as how often.  

Understanding who you owe money to, and how much will help you understand where you truly are financially. Consider grabbing a calendar and writing out when bills are coming out of your account, and for how much. You may notice a pattern that many of your bills are due at the start of the month. You may consider calling to see if you can change billing cycles to even out bill payments. Otherwise, you can plan that your second pay cheque goes towards extra debt payments and savings. If you are not keeping track of your spending it is hard to understand your spending habits and patterns.  

Set Financial Goals  

Having clear and measurable financial goals will provide you an achievable outcome.  Determine your short-term and long-term goals look like, such as saving for a down payment, paying off debt, or building an emergency fund. Assign specific timelines and amounts to each goal. Remember, realistic and measurable goals are more likely to keep you moving towards the end goal. It is likely that as you move through different life stages, your goals and priorities will change. For those with a house, the goal may be to pay off the mortgage. Once that has been accomplished, you may be saving for retirement. Others may be looking at childcare costs, debt, vacation goals etc. There really is no wrong answer on what goal you set.  

Outline Your Income and Expenses  

To create a successful budget, group your income and expenses. Start with your income sources, such as your salary, side hustles, and anything else going into your account like tax credits, child support or alimony payments. Next, list your expenses, such as rent or mortgage payments, utilities, groceries, transportation costs, and debt repayments. Finally, consider optional expenses, such as dining out, entertainment, and hobbies. Prioritize your expenses based on importance and allocate funds accordingly. For some, take out dinners are a priority and if that’s the case you need to make sure you can work it into your budget. What are you willing to take out to make that purchase work?  

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Track Your Spending  

To gain a better understanding of your spending habits, track your expenses for three months. Use mobile apps, online tools, or even a piece of paper to record every expense. Review your spending patterns and identify areas where you can cut back or find more cost-effective alternatives. Remember, small changes can have a significant impact on your overall financial health. The goal is not to remove everything and to not spend. We know that’s not realistic. What is realistic is to monitor what has been spent, and adjust accordingly.  

Test Your Budget  

Creating a budget is only the first step; implementing and monitoring it is equally important. Track your progress regularly and compare your actual spending against your budgeted amounts. Adjust as necessary and identify areas where you need to make some changes. Maybe you continue to spend more than you budget at the grocery store, where can you reduce your budget to put more into your food allowance? Maybe you treat yourself to a weekly treat every time you do a certain task or errand- if you haven’t planned it in your budget make sure to add it in! Consider using budgeting apps that can keep you on track quickly and easily. Stay committed to working on your budget, celebrate milestones, and make necessary adjustments along the way. 

Creating a budget is a powerful tool that can transform your financial life. By assessing your current situation, setting goals, categorizing income and expenses, tracking spending, and creating a realistic budget, you'll gain control over your finances and work towards achieving your financial aspirations. Once you have an understanding of your money situation, you can start to make plans for any surplus income you have instead of spending it without a plan.  

If you find yourself continuously in a deficit each month and unsure of how to get back on track, reach out today for a free, confidential, no obligation consultation. Bromwich+Smith’s Debt Relief Specialists are available by phone at 1.855.884.9243, or request a call back at contact us page. 

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