How to Make a Budget From Scratch

Benjamin Feldman | Credit.com 

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The difference between people who are financially secure and those who are not often comes down to one thing: Whether or not they make a budget — and stick to it. Of course, there are many other factors, but that is a consistent one. Not only does budgeting lead to security, but it also can play a role in helping you pay off debt and raising your credit score over time.
So let’s say you don’t have a budget. You don’t even have an inkling of how to start a budget. But you want to get started. It can be intimidating, but don’t worry — in this article we’ll explain how to make a budget from scratch.
In no time, you’ll be taking better control over your finances!
1. Look at the Previous Month’s Spending

Making a budget doesn’t have to be as hard as it sounds. If you use your credit card or debit card for most of your purchases, then you can log in to use your bank’s online dashboard to see your recent transaction history. If you use cash only for purchases then you may need to spend a month tracking it to know for sure what your spending looks like each month.

What do you look for? Well, you need to know where your money is going and whether you’re spending too much on certain things. So as you look at your previous month’s spending, you need to tally up how much you spent on rent, groceries, entertainment, phone bill, insurance, etc.

The total amount you spend is important, but what’s even more crucial is that you understand your categorical spending and…
2. Make a Plan to Address Overspending
Let’s look at some specific numbers. What if your monthly income is $2,400 after taxes and you spent the following last month:

• $1,100 on rent or mortgage
• $400 on groceries and eating out
• $300 on entertainment, including cable TV
• $100 on phone bill
• $750 on other expenses including new clothes

That means your total expenses are $2,650, which is $250 more than your income! OK, we can all look at those numbers and recognize that there’s a problem. But how to fix it? That’s where the budgeting comes in. A budget is basically a spending plan. So you would need to write down how much you will spend on each category next month. Maybe you decide to eliminate your clothes shopping habit, which will save $300 and cancel your cable TV, which will save $100. So your budget for next month is $2,250. This way, you will have a little breathing room.

But how to make sure you actually stick to your plan? You’ll need to…
3. Track Your Spending Through the Month
After you make a budget (for each category) then you’ll need a way to track it as you go! And this is why you need a spreadsheet or online budgeting app. You’ve got to write down your plan or else you’ll never stick with it. And it’s actually more fun than you’d expect — especially once you start seeing how much money you’re saving.
Each week, check in with your budget and make sure you are not going to overspend. Did you pay $80 for groceries this week? OK, then add it to your spreadsheet (or software) and look at how much money you have left. As time goes on, you’ll become an expert at making your money last until the end of the month. Not only because of tracking the numbers, but because you will…
4. Use These Tips to Stay Motivated and Succeed
There’s no denying that the human brain is not always logical. That’s why you need to use a few psychological methods to keep yourself going. First, identify someone you trust and care about to confide in and share your budgeting goal with them. That way, they can act as an external source of accountability — and the fact that you won’t want to disappoint them when they ask “How’s it going?” will make you very motivated to stay on budget.
You can also write down your long-term goals on a big piece of paper or cardboard, whether it is buying a home for your family, sending a child to the college of their choice, or being able to retire early. Write down your goal(s) and put a few pictures on there for good measure. Then place this somewhere that you are sure to see it every day. It will be a constant reminder of your desire to keep going!

One other important note: If your goal is to pay off your credit card debt or any other kind of debt, one of the most important things you can do is try to lower your credit card interest rates. Not only will this save you money in the long run, but it will also make your budget much more manageable because you’ll have lower payments each month.

Hopefully these tips will help you reach your financial and personal goals. In the meantime, you can also look for other ways to save money. Good luck!