Figuring out how to build a budget

figuring out how to build a budget

Create a budget using these five easy steps.

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.

To save for the future, aim for a monthly spending total that’s only 60% of your gross income.

Step 5: Review

Make a habit of reviewing your budget every month, particularly in the early stages. It’s also helpful to get a qualified second opinion. That might come from a trusted friend or relative who’s skillful with spending, saving, and investing.

Once you’re out of college, it could also come from an experienced financial planning professional who can review your budget, offer suggestions, and help answer questions. And be sure to back up everything you hear with your own research.

There will be emergencies and events that may divert you off your target every once in a while. But, if you make budgeting a lifetime habit, you’ll have the tools you need to adjust your spending and get back on track.

Account alerts are a simple and convenient way to make sure you’re staying on budget. With a Wells Fargo account, you can be notified of your mid-month Budget Watch progress, balance alerts, or other activity.

Want to read more about Building a spending plan after graduation?

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