Creating a Budget

Learning to budget money is everything.
There is a cost to live! 

The old adage-nothing is free can’t be more correct in todays consumerism. How to budget. Start with writing down what exactly you do every day when you wake up all the way until you go to bed every day of the month. Then prepare a list of which items or actions cost you money. Shampoo, medication, beverages you drink, clothes you wear, bike you ride, car your drive, the insurance you pay, school you attend, transportation, books you buy, sports you play, gym memberships, and groceries etc. Once completed put the cost next to them and multiply it by 30 days so you know your monthly “overhead” cost.

Money is the driving factor in the majority of aspects of our daily living. The dwellings where we live, the cars we drive and the fuel and maintenance costs, the bills we pay, the technology we acquire, the schools we choose to attend, the clothes we wear, the food we consume, the restaurants where we dine, the vacations we choose to experience, the clubs we join, other transportation costs for work and pleasure – the list is endless.  Consider the ways you spend money on a daily basis and that each represents a financial choice.  Often we don’t even actually think deliberately about the choices being made and the money being spent.

Determining Expenses

Learning to budget money is your super-power for a financially secure future.  It costs money to live!  The old adage that nothing is free feels more true than ever with today’s consumerism.  


How to develop a budget?  

Start by writing down what exactly you do every day from the time you wake to the time you go to bed every day of the month.  Then prepare a list of which items or actions cost you money.   Toiletries,  medication, clothing, transportation (whether it’s a bike, a car,  or public transit), insurance costs, school costs, sport equipment and fees,  gym memberships, entertainment, groceries, dining out,  etc.   Once you have a list,  put the cost next to the item, and multiply it by the number of times you make the purchase per month,  This tells you your monthly expenses, or overhead costs.  For example, you might fill a prescription only once a month, but fill your gas tank weekly. 

Computing Your Net Income

Now that you have determined your budget and derived your monthly expenses (overhead),  the next step is to calculate  your net income or “take home” pay.  This calculation will depend on how frequently you are compensated: weekly, biweekly,  twice a month, or monthly. Review your last paystub and find the net income line.

  • To calculate a monthly net income average, multiply your current net income by the number of paychecks per year and then divide by 12 to obtain a monthly average.  
  • For example, if you’re paid weekly, multiply net income by 52 (weeks) and divide by 12 (months).  
  • If you’re paid every two weeks, multiply the net income by 26 (pay periods per year) and divide by 12. 
  • Now take your monthly overhead cost/expenses and subtract your monthly net income from that number; the remaining money is the amount you can allocate for savings or investments.

What is a Budget and Why Create One?

A budget is a plan that identifies how you’ll spend your income; your budget will prevent you from getting into debt and will allow you to save. To create a budget, you need to have your expenses and net income available, which you calculated previously. 

To start, you need to understand if you’re living within your financial means:  are you spending more than you’re earning or are you earning more than you’re spending? 

To determine this, compare your monthly net income and your detailed monthly expenses. 

If you have more income than expenses, that’s awesome!  You’re living within your means and can start saving. 

If you’re spending more than you’re earning, you either need to make more money, or cut some expenses! 

To create a basic budget, you’ll need to take a close look at your expenses. If you have more income than expenses, plan on saving the extra income by putting it into a separate savings account. This will make it less tempting to spend impulsively.

If you’re spending more than your earning, take a close look at the expenses you identified and determine what is truly a need vs. a want. Needs are real necessities, like food, shelter, clothing and should stay at the top of your expense list. Wants are things like entertainment, eating out frequently, multiple music app subscriptions, travel for pleasure, etc.  These should be a lower priority so you are not spending money you don’t have.  The ideal budget has a line item dedicated for savings!

Now that we have a budget and avenues to squirrel away your funds.
Let’s figure out what you’re planning to save for:


  • Fitness equipment
  • Trip
  • Home/home improvement project
  • Car
  • College
  • Phone
  • Recreation


Plan comes into play! First, how much will you need to save to pay for your purchase? Second, if you need to finance the expense, ask yourself: how much money have I budgeted for the item? Do I have the money to pay in full or partially? If I have to finance the item, what are the terms of borrowing and are there any upfront fees or prepay penalties? Assuming I can not afford to prepay the amount financed, what will be the interest rate on the amount borrowed AND for how long is that rate “locked” or does the rate adjust?

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