Most people know they need a budget. But when it comes to creating one — and then sticking to it — it can be tough to get started, especially if you’re new to adulting.
Whether you’re building a budget for the first time or simply need a refresher course, here’s a step-by-step guide to get you started:
Step 1: Organize
At its core, a budget is a worksheet with two columns: one for income and one for expenses. So, you’ll need to gather your financial documents, such as pay stubs, credit card and bank account statements, phone bills, and car or student loan bills, to ensure you have enough information to begin tracking the money coming in and going out.
Step 2: Track
For one month, keep a detailed log of your spending. Track all your expenses, from big ticket items, like car, rent, or credit card payments, down to the amount you spend on daily lunches and parking. If you are a Wells Fargo customer, consider using free tools, such as Budget Watch, to automate the process of tracking your spending and setting up budget goals. Wells Fargo Control Tower can also be useful to quickly see what merchants you have regular, recurring payments with.
Step 3: Analyze
At the end of the month you tracked, total your income and your expenses and then subtract your expenses from your income. If your expenses add up to less than your income, you’re heading in the right direction. If not, examine your spending with two questions in mind: “What can I do without?” and “What’s really important?”
Step 4: React
After looking at all of your expenses, separate them into categories and set a budget for each. If you think you spend too much in a given area, set a goal that will force you to actively cut back.
And don’t forget to create a savings category in your budget. How big should it be? Aim for a monthly spending total that’s only 60 percent of your income. This doesn’t mean you’ll be able to start saving 40 percent of your income overnight — it can take years to build to that number. But, if you create a budget with a goal in mind, you can begin to balance spending with saving and move your finances in the direction of those bigger savings goals.
When you are ready to start saving, look into using automatic transfers, so you don’t even have to think about putting money aside each month.