Budgeting has an undeserved bad reputation. Budgeting is not as difficult- or painful- as most people make it out to be. And, whether you admit it or not, you have a budget. The decision you have to make is whether you want to budget by default or with intention.
1. Start with what you are spending right now.
Look at the last two weeks, month, quarter, or (best) year of expenses. This is easiest if you track your checking account in an Excel spreadsheet, but there are also apps, reports on your credit card’s website, and other options.
Going back one year is best because you will capture seasonal variances like vacations, heating/cooling, holidays, and special events.
2. Break your expenses into categories.
These could include paycheck, utilities, gas, groceries, gifts, travel, rent/mortgage, insurance, etc.
3. See what your average monthly expenses are.
Divide the total for each category by the number of months you used in your sample.
Note: if you had an unusual expense, remove it from the sample before computing the average.
4. Now you know what you starting budget is. From here you can make adjustments for what you expect to happen in the future.
Note: if you have an expected upcoming expense, be sure to add it to the budget.
5. Remember, what you track you can improve. If your budget is not quite where you want it to be make little steps to work toward where you want to be.