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How to make a budget in 7 steps


A man at a desk with a computer smiles confidently as he looks out the window.

Where is your money going? How much money do you actually have? How much do you need to afford the life you want? Budgeting helps you answer these questions. It’s all about understanding your financial situation and making a plan. Plus, budgeting helps improve more than just your finances - getting a handle on your money is key to feeling confident in your future. So let’s break it down - here’s how to create a budget in 7 simple steps.

1. Figure out your income

Start by making a list of all the money you have coming in each month. This includes:

  • Salary
  • Any government benefits, like disability payments or employment insurance
  • Interest from savings accounts
  • Dividends from investments
  • Capital gains (what you earn when an asset sells for more than you initially paid for it)

Note: If you’re making a household budget, include the income of everyone in the household. Do the same for expenses.

2. Map out your expenses

Figure out where your money is going by making a list of your expenses each month. This includes:

  • Rent or mortgage payments
  • Utility bills, like water, electricity, and heating
  • Groceries
  • Gas and/or public transportation
  • Credit card bills and other debt payments
  • Child care costs
  • Communication (phone, internet, cable, etc.)
  • Entertainment (streaming subscriptions, ordering takeout, books, etc.)

3. Calculate your balance

This math is simple. Take your total income and subtract your expenses. If it’s a positive number, that means you earned more than you spent (excellent!). If it’s a negative number, that means you spent more than you earned (not so excellent).

This balance tells you how well you’re currently managing your money, and gives you a baseline to help you plan for the future.

What’s the 50/30/20 rule?

When you examine your finances, you might want to keep the 50/30/20 rule in mind. This rule, made popular by Elizabeth Warren in her book, All Your Worth: The Ultimate Lifetime Money Plan, explains how to categorize your expenses in order to maintain healthy finances.

Here’s the breakdown:

  • Essentials (50% of your expenses)
  • Wants (30% of your expenses)
  • Savings (20% of your expenses)

4. Identify your goals

What do you want to get from your money? Maybe you have a few short-term goals, like setting up an emergency fund or saving up for a new TV, and longer term goals like buying your first home and saving for retirement.

To start making progress on your goals you need to 1) know what they are and 2) include them in your financial plan. Starting small can make a big difference in the long-term. For example, if you invested $100 a month for 40 years at a 5% interest rate, you’d end up with $152,602!

5. Make a plan

Look at your balance and your goals. Are you spending more than you earn? Do you have enough money left over to put towards your goals? Make a plan for what you want to tackle first. For example, if you’re spending too much, take a closer look at all of your expenses - there may be opportunities to cut back. If one of your goals is to start building an emergency fund, you may want to set up pre-authorized contributions to a high interest savings account.

Just remember, take it one step at a time - don’t panic, don’t rush.

6. Stay on track

Budgeting is like any good habit - you have to keep at it if you want to see results. Set up a recurring calendar reminder to check in on your financial situation and track your progress. You want to keep your budget on track, and adjust it as needed. After all, changes in your life will translate into changes in your budget, whether it’s a losing a job, adding a family member, moving to a new place, or simply re-prioritizing your goals.

7. Talk to an expert

Remember when we said not to panic? Nothing boosts your confidence like an advisor’s expert opinion and guidance. There’s no reason to manage your money alone!

Here’s a big bonus - at Meridian, you can talk to an advisor for free, no matter how much money you have.

Talk to one of our advisors

A version of this article was originally published on December 7, 2020.

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