What is Budgeting?

For many people, budgeting can conjure up images of sacrifice and penny-pinching, but in reality, budgeting is simply creating a plan for your money.

A budget can help you establish spending limits, reduce your expenses, pay off debt, and even have a little money left over for the important things in life.

Budgeting can also help you become more mindful of your spending habits and can help you plan for major purchases and important life events, including: buying a home or car, going on a trip, attending school, having children, and saving for retirement.

If you’ve never created a budget before, you may be thinking that a budget could never work for you, but if any of the situations below sound familiar to you…

✗ You often have trouble paying your bills
✗ You never know where your money is going
✗ You have issues paying off debts
✗ You haven’t been saving regularly

…A budget may be exactly what you need to get back on track.

But how do you start? What is the first step you must take to build your budget and get control of your finances?

Before building a budget, start with your financial goals

For example, would you like to pay off your debts? Put a downpayment on a house? Pay for school? Save for retirement?

Everyone’s financial goals are different, but having a clear idea of ​what’s important to yo​u is the first step toward financial freedom and success.

Once you have your goals outlined, prioritize your list so you know which ones you’d like to tackle first. If you’re feeling ambitious, you can even try setting deadlines for each goal as a way to hold yourself accountable.

Keep this in mind: it’s important to be realistic about your goals and budget. Don’t get down on yourself if it takes you a while to achieve a goal or make progress. And if you need to adjust along the way for “life,” that’s perfectly okay.

Once you’ve got your list of goals prioritized, it’s time to start building your budget.


The basics of budgeting

While it may seem complicated, budgeting really comes down to three simple steps:

Step 1:​ Add up monthly income
Step 2: ​Add up monthly expenses
Step 3: ​Subtract expenses from income

To make things simple, ​here is a budgeting calculator you can use to get started.

Once you go through the steps listed above, you’ll know if you’re operating within a surplus or a deficit, and you can take action from there.

If you have a surplus each month, you can use that extra money to support whatever financial goals you’ve outlined. For example, if you have $500 leftover for the month, allot a portion of that money (maybe $100 or $200) to the first financial goal on your list.

If you have a deficit each month, you can look into your spending habits and see if there are ways to cut back, for example, reducing the number of “want” purchases (i.e. – shopping, entertainment, etc) vs the “need” purchases (i.e. – groceries, mortgage payments, etc).

Regardless of which situation you’re in, the most important thing is to not give up. Budgeting is hard work in the beginning, but if you stick to your goals and your new habits, the payoff is financial freedom and peace of mind.

If you’d like to learn more about building a budget and sticking to it, ​we recommend reading this article from our blog​ or to check out ​this helpful video.

Budgeting for your specific stage of life

Now that you have the basics down, let’s talk about some of the ways you can budget for your specific situation.

Budgeting for yourself

When you’re on your own, you may be more tempted to spend more and save less, but this is actually the best time in your life to build strong “budgeting habits” that can benefit you later in life.

One way you can do this is by opening a savings account and automatically allocating a portion of your paycheck to your savings account. This will allow you to start saving for retirement or big life purchases (like a home, car, kids, etc) long before those events happen.

As you develop your budgeting habits, make sure to track your progress and adjust along the way as your life develops and things change.

Budgeting for your Family

When you have a family, budgeting becomes even more important, as more people usually means more expenses.

One thing we recommend is sitting down with your partner and kids and setting the budget together. Decide, as a family, what’s important to you and where you think your money should go.

This will also give you an opportunity to plan ahead of the big expenses, including birthdays, holidays, vacations, tuition, and more.

Finally, we always recommend creating a “buffer budget” within your budget to cover any unexpected costs that may come up over time, including home repairs, medical costs, pet expenses, or anything that’s relevant to your family.

Budgeting for retirement

When you enter retirement, you’re typically living on a fixed income, which means knowing how much money you have coming in and how much is going out becomes really important.

As you know, adding up monthly income is the first step to budgeting, but when you’re retired, you may have a variety of income sources coming in, including social security, retirement funds, investments and more, so keeping track of those sources is vital.

Another thing to consider is health care costs. As you age, your health care needs may change, and as a result, costs may go up. One thing you can consider is creating a “health” budget and putting away a portion of your monthly income toward it.

You’ll also want to think about paying off big expenses, like a mortgage for example, and ensuring you’re budgeting a portion of your monthly income towards paying it off.

Finally, don’t forget to factor in some fun. You’re retired, after all, so it’s important to find the time (and the funds!) to enjoy your life as you see fit.

Ready to create your budget?

You now have the knowledge and tools you need to successfully set your financial goals, build a budget, and regain control over your finances.

What kind of financial goals are you working toward? Share yours in the comments below!

Download your free budget template.

Read more about the purpose and objective of Financial Literacy Month.

This article is part of Financial Literacy Month at Cashco. This year, the theme is “Take Charge of Your Finances!” and we’re celebrating by sharing weekly tips around managing money and debt more wisely, saving for the future, and understanding your financial rights and responsibilities.