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Dear Olga: Step-by-step Budget

Dear Olga,

How do I ACTUALLY set up a budget? Every time I try, it seems like there are missing parts. Is there a step-by-step way of doing this, and figuring in your expenses and the moving parts?




Dear El,

This is one of the top questions I'm asked, so I'm very glad you wrote in!

Like any new thing, one of the hardest parts about putting together a budget is starting. What do you do? How do you do it? You're ready to put down your pencil, just reading this, aren't you?

First, let's define what it means to have a budget. This way we will move forward from the same starting point. A budget is a list of your expected income and expected expenses. Your money expectations for the month, if you will.

If you've never worked on your budget or tracked your expenses, this can seem like a daunting task. If you're in these shoes, don't worry, you're not alone! Only roughly 40% of Americans actually use a budget.

If you never worked with a personal budget before, to figure out what will be a realistic budget for you, keep a diary of all of your expenses for the next two weeks. Ideally a month would be great, but it can be hard to keep up with record keeping for 30 days. If you keep track for two weeks, multiple the totals for each category spent by 2 and you should have a good estimate of what your starting monthly budget will be.

Now that you have a rough estimate of your monthly spending, you can put together your first budget. Here are the steps to start:

Template from "Shmoney Guide: Making Money Choices Doesn't Need to Be So Scary"

Step 1: List all of your income.

Step 2: Total all of said income (only necessary if you have more than one source of income).

Step 3: List all of the bills you receive each month (for credit card payments, list the minimum payments for each card).

Step 4: List all monthly costs you may not receive a bill for but still need to be paid (examples: food, gas, some childcare costs, loan repayments to family).

Step 5: Total all amounts in Steps 3 and 4.

Step 6: Subtract total in Step 5 from total in step 2. This amount left over is your spending cash until the next time you get paid.

As the month moves along, track your spending against what you set as your goals for the month in your budget.

Remember, it takes time to find your sweet spot so it may take a few months before your budget begins to feels comfortable.

I hope you found this helpful!

If you're interested in reading more about the budgeting process, I just released an ebook that may help you. It's called Shmoney Guide: Making Money Choices Doesn't Need to Be So Scary which covers the basics of a budget from beginning to end.

If you need more guidance, I'm happy to hop on a quick call with you. Here's a link to my calendar!


If you have a money question, submit it here for a chance to be featured in the "Dear Olga" column!

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