How to Create a Budget for the First Time

Sitting down to make a budget for the first time can be a challenge. And the reason it’s hard is because budgeting is more than just numbers on a page. Think about it. It’s pretty simple to list your income and expenses in neat little rows. But facing the reality of not being as financially independent as you want is a little more difficult.

The good news is it gets easier. It takes time to get the hang of what to budget for monthly. It might take even longer to get your spouse on board, and that’s OK. What’s important is that you track your spending and set financial goals, using your budget as a guide. You can even start creating your 2022 budget by using an online budget calculator tool.

Here are some tips for making a budget for the first time:

6 Steps for Creating Your First Budget

What is the first step in setting up a budget? Besides actually deciding to put in the work, creating a first-time budget requires you to get all your information organized before you start. These steps are a great guide to help you along the way.

1. Know your exact take-home income. You might have an idea of how much money you make, but when you budget, you need to know exactly how much money is coming in every month. Some people work 9-to-5 jobs where their employer automatically deducts certain expenses from their paycheck. Others receive tips or run their own businesses. That means they have to set aside money from their paychecks themselves if they expect to owe taxes or if they have to pay for their own health care. Once you figure this out and know the exact number you have to work with, you can move on to the next step.

2. List your real-life expenses. Many people know when their bills are due, but they might not realize some of their forgotten expenses, like subscription services. They might also be surprised to find just how much money they spend on groceries. And sometimes you’re just not in the mood to cook dinner. Be realistic — most people probably need to add takeout or restaurant meals to your monthly expenses.

3. Look for ways to cut costs. As you look at your expenses, find some you can cut out. Then, decide which ones you can’t live without (for many people, it’s deciding between a home gym and a gym membership). Make sure your income covers all the expenses you want to keep with room to spare. If it doesn’t, you’ll have to cut some more expenses or find ways to make extra money. Of course, you don’t want to be too restrictive. If you cut all excess spending too quickly, you’ll inevitably break your budget. Find a happy medium between indulging and being conscious of your savings.

4. Build savings into your budget. Aside from simply cutting down on expenses, an important part of creating a 2022 budget will be saving as much as possible. Life can change at any moment, so it’s important to have an emergency fund in place. In the past, most experts recommended having at least three months’ worth of living expenses saved up. Since uncertain times are probably still top of mind, experts are now recommending having a six-month emergency fund.
   
   So, how can you save more money in 2022? First, make sure some of your monthly income goes automatically into a savings account that accrues interest. Then, make little changes that will add up to big savings. You can even consider earning extra income from home. The combination of automating your savings, spending less and earning more will help to prepare you for any unexpected situations.

5. Get a month ahead. Some people budget paycheck to paycheck. If you can, do your best to start budget planning one month ahead. When you get a month ahead, you don’t have to wait for payday before sending in your car payment. You don’t have to anxiously count down the days until you’re paid again. You already have everything you need for the month right there on the first day. It’s a great feeling!
   
   Give yourself a month or two to slowly get one month ahead. Have a garage sale, sell old things you don't want anymore or start a side hustle. Put any extra money you make in a separate account as a buffer to slowly move you to the goal of being a month ahead. Once you get there, monitor your spending on a daily or weekly basis to make sure you’re realistic about your expenses.

6. Do regular check-ins. Take a few moments to review your budget throughout the year to make sure you’re still on track. Things may change as time goes on — you might get a raise at work or you might need to buy a new car. The most important thing is that you understand where you stand financially and adjust your budget accordingly.

Lastly, Be Mindful

Once you get the hang of budgeting, you’ll see that it isn’t so bad after all. Instead of feeling like your 2022 budget restricts you, you’ll start to realize it gives you permission to spend money where it matters most. And don’t beat yourself up if you forgot to cancel a subscription or had an unexpected expense. Budgeting isn’t about being perfect. It’s simply about being mindful.

This page has been updated from a previous posting from January, 2019.