* This article was originally published on October 2, 2019. It has been updated for 2020.

Do you enjoy putting money away for a rainy day, or are spur-of-the-moment shopping sprees more your style? Either way, having a budget to work from can help you make the most of your money and financial future. If you’ve never put a budget together, you’re not the only one. You might even be surprised to learn how many folks don’t have one. In fact, only 32% of Americans budget their income and expenses.

Having a simple yet effective budget can boost your financial confidence and lower your stress levels, and putting one together doesn’t have to be difficult. While you can go all out, I find that there are plenty of simpler alternatives that get the job done. Consider making your income and expense lists with pencil and paper, spreadsheets, or even a smartphone app. When you use your budget to gauge your spending, you’ll know exactly where your money is coming from, where it’s going, and how it’s moving you toward financial independence.  

I’ve seen how simple budgets can help knock out debt, lessen holiday gift-giving stress, and make dream vacations a reality. Because of their versatility, I like to encourage my clients to start with a simple annual budget, broken up by month. This type of setup can help you see your big financial picture while also zoning in on monthly spending habits. There’s no better time than the present to start budgeting, so let me show you how you can start yours and get on track to a healthier financial future. 

Starting a Budget: Show Me the Money!

To start your own personal budget, all you need is a recording process of your choice and access to your financial data. Put simply, you need to know about every dollar you own, even if it’s not in bill form. After all, your assets are often more important than the cash in your wallet. With that being said, let’s start with the most obvious source of money: your income.

Because we’re working on creating a monthly budget, it’s important to know how often you’re paid. Weekly? Bi-weekly? If you’re paid bi-weekly, you’ll notice all months will include at least two paydays, but some could include three. You can use these months to grow your savings, catch up on miscellaneous bills, or put toward your financial goals. Mark down every day of the month that wraps up a pay period. 

Next, how much do you make? If you earn a salary, you should have an accurate idea of exactly how much each incoming paycheck will be. If you’re paid by the hour, are you guaranteed a certain number of hours per week? Do you work overtime on a regular basis? If your paychecks fluctuate, I recommend creating a budget around the minimum amount you can expect. It’s better to have an unexpected surplus at the end of the month than to overestimate your income.

Next, how do you receive your income? If your paychecks go into your account via direct deposit, it’s easier to mark the exact date your funds will be available. If you receive paper checks, you’ll need to include a buffer period between when the check arrives and when it clears. This is important because, if you have bills due before a check’s estimated clearance date, you’ll need to budget for them in advance.

Finally, you’ll want to include any other reliable sources of normal income, like that from rental properties, dividends, or interest. Don’t include potential sources of income, like performance-based bonuses or that long overdue inheritance from Grandma Betty. You’ll also want to make note of your total liquid savings to date.

When you’re done recording your income, you should have a list or calendar that shows you exactly what you have and when you can expect income payments throughout the month. You should also have easy-to-spot reference data regarding your overall savings.

Adding Up Expenses: Wait, I Spent How Much?

This is the part of budgeting that can be the most stressful. It can be daunting to see how many other hands your money goes into. Just remember that it’s easy to make a monster out of the mouse under the bed. Once you face your expenses, you’ll likely feel more empowered and ready to take control of your finances.

According to one survey, two-thirds of respondents admitted to wasting “a considerable amount” of financial resources. Having an exact picture of your expenses can be the best way to get control of debt or find where you can grow your savings or accomplish your goals. Not using that gym membership? Cancel it and apply the saved funds to your credit card payment. Embarrassed by the amount of money you spend eating out? Watch your savings grow as you cook at home more often.

In addition to what you spend monthly, it’s important to include annual and quarterly expenses as well. Even though we’re working on a monthly budget, start by making a list of every expense you have throughout the year.

Start with common expenses, including your:

• Rent or mortgage payments
• Insurance premiums, including auto, health, disability, and others
• Utility bills, like your electricity, water, and gas
• Technology costs, such as your cell phone, cable, and internet

You’ll also want to include monthly debt payments and note their associated interest rates. Knowing the amounts due in your biggest accounts and who you pay the most interest to can help you develop a game plan to eliminate your debt. Be sure to include your:

• Car loan
• Credit card debt
• Student loans
• Personal loans

Then account for the parts of your budget that often fluctuate and those you can adjust as needed. These types of expenses often include:

• Groceries
• Gas
• Clothing
• Entertainment

Don’t forget about irregular expenses, like:

• Seasonal yard cleanup expenses
• Property taxes
• Vehicle registration
• Quarterly utility payments, like trash collection
• School tuition

For these types of expenses, you’ll want to divide them appropriately. For example, you can split your annual vehicle registration payment into 12 monthly payments. Put the money aside each month so you’re not caught off guard when the bill comes in the mail.

Once you have your list of expenses complete, take a moment to analyze it. Where does most of your money seem to go? Are you paying for mainly living expenses, or are you going overboard on entertainment? Are you focused on paying down debt, or is your total obligation amount a shock?

Take time to comb through your bank statements, bill-pay apps, calendars, and credit card statements. Chances are your first attempt at budgeting won’t be perfect and you may forget an expense or two. That’s okay. Add them into your budget as soon as you realize they’re missing.

It’s also not uncommon to be taken by surprise when unexpected expenses arise. That’s why it’s so crucial to have an emergency fund. If you don’t have any reserved funds for emergencies, start building one up now. Adding payments to such a fund to your monthly budget can be the best way to get the ball rolling.

Budgeting Your Savings: Pay Yourself First

In fact, budgeting for savings is just as important as budgeting for your mortgage or car insurance payment. Why? Think of it this way.

You know you need to start working out. You’ve been telling yourself for months that it’s time to get into shape. You decide you’ll squeeze in a workout every night before bed. The first week of your plan seems to go well. You get a little cardio in on Monday and do some weight training Tuesday. You continue making small steps toward your weight loss goal throughout the week. But the next week, you’re too busy on Monday and your Tuesday night plans run late. You don’t get your first workout in until Thursday. By the fourth week, you’ve completely lost motivation and tell yourself you’ll try again another time.

The same thing can happen when you tell yourself you need to start saving. You might start by throwing a few extra dollars in the bank account but, before you know it, you keep forgetting or run out of funds. Having the mentality that you’ll put whatever’s left at the end of the month in your savings likely won’t hold you accountable.

Maybe you’re not saving because you’re not sure what you’re saving for. Set a goal for yourself. If you can’t think of one, start by building up the basic recommended savings, like an emergency fund, and then begin working on your retirement nest egg. You can also start a fund for a vacation home or your children’s college. No matter what you choose to save for, treat that monthly payment like you do any other. Your savings deserves just as much commitment as your groceries or electric bill.

Wrapping Up Your Budget

Got it all down? Congratulations! You’ve started a budget. Now that you can see your finances all laid out, it can be easier to see where you’re overspending, where you can spend more, and how you can reach your financial goals in record time.

Going forward, keep a few final tips in mind. Update the key areas of your budget on a regular basis. A budget shouldn’t look the same every month. Be flexible and update your income and expenses as necessary. If you plan on making big budget changes, ease into them gently. Biting off more than you can chew can lead to abandoning your budget altogether.

Finally, stay in touch with your financial professional who can help guide you and support you on your journey. Budgeting doesn’t have to be a solo endeavor.