Newlywed Tip #3: Creating a Budget Part Two

In my last post about creating a budget, I addressed reasons why to create one. This post will get a little more detailed on how to actually create a budget.

6 steps to creating a budget

1. The most important thing is that your budget must work for you! This may seem obvious, but if you try to use someone else's system and it's too complicated or too simple, you'll find that you aren't actually sticking to your budget. Keep this in mind while reading the rest of this post.

2. You have to decide what time frame works best for your budget. Most people tend to use a monthly budget, but if you get paid every week and prefer a weekly budget, then that's great, too! Here's one helpful suggestion from my sister: If you get paid bi-weekly, use 2 weeks of pay as your monthly income. Then, two months out of the year, you'll receive three paychecks that month. Since you haven't budgeted for this, it's like a bonus and can be put toward extra savings or some other special goal.

3. Decide which categories you would like to include in your budget. Keep it simple - having too many categories can be overwhelming. Make sure to include enough categories to cover all your purchases, though, and especially make sure to include categories for long-term savings such as for a new car, vacation, or gifts. Even though you may not spend in these categories every month, it's important to set some money aside for them.

4. Allocate a certain amount of your income into each category. This website lists some percentage guides for families of different sizes - it's an excellent place to begin when trying to determine how much to allocate to each category. (It also helps by pointing out important categories to include in your budget.) This may be obvious, but make sure you do not allocate more to expenses than you earn!

5. Find a tool to keep track of your budget. Every expense must be tracked in order for the budget to really work. Some people prefer pencil & paper, some prefer a spreadsheet they've created like Excel, some prefer a budget tool. My current personal preference is Pear Budget, a wonderful budget website that is simple yet lets me customize my budget as much as I need. They offer a free 30-day trial, then it costs $3 a month after that. While I try to save as much as possible on unnecessary expenses, I have found that the $3/month saves me a ton of time and I end up with a budget that works and keeps us on target.

6. Finally, be able to adjust! After a few months of budgeting, you may find that you don't spend quite as much on gas as you thought, but that your average power bill is a good bit higher than you accounted for. Step back, look at your numbers, and tweak them a little. Repeat this every so often and it won't be long before you have the best budget for you!