By Jennifer Tucker
September 12, 2024 | 7 Min. Read
Your budget, sometimes known as a spending plan, is an important tool for money management. Knowing how to create a budget can help you get a handle on your finances by tracking your income and expenses and setting goals.
When done right, budgeting can help you find financial freedom. Whether you want to build your savings, pay down debt, or build your credit, creating a budget is a step in the right direction.
Simply put, budgeting is tracking money in and money out. When you create a budget, you’ll list your income and expenses and determine whether you’re operating at a surplus or a deficit. If your income exceeds your expenses (you have a surplus), you’re likely on the way to achieving your financial goals. If your expenses exceed your income (you have a deficit), you may need to make some changes to your spending and saving habits.
Month to month, funds flow in and out of our checking accounts. And in the age of digital banking, it often happens without us giving it a second thought. So, you might wonder, “What is the purpose of budgeting?”
Creating a personal spending plan helps you gain greater awareness of your spending habits. It can help you keep track of money in and money out, set goals, and ultimately gain financial control.
Following a budget can be tough, but it’s important to remember that it’s not set in stone. Your spending plan will change at different stages of your life and financial maturity. If you’re just starting out, a budget can set the foundation for your financial journey. Changes in your life that impact your financial situation—like a job loss or starting a family—will require you to update your budget to match up with new goals.
Once you learn how to budget effectively, you’ll be better equipped to ebb and flow with the changes.
Learn more about how to stick with whatever spending plan you build.
The benefits of creating a spending plan are wide-reaching and can span from relieving financial stress to achieving long-term goals. Building a budget and following a spending plan can help you:
A budget can help you spend within your means, pay bills on time, create emergency funds, and save for major purchases. And all of this can help you build your credit, too.
Sticking to a budget will help you achieve your savings goals and build assets that can improve your financial well-being in the long term. Following a budget will help you work toward financial independence.
Having a budget will help reduce uncertainty and anxiety around whether you have enough money in your bank account to pay bills or meet your savings goals. This clarity can help you gain peace of mind about your finances.
Following a spending plan can give you greater control over your finances rather than letting money control you. A solid understanding of your income and expenses will allow you to make smart financial decisions.
There are a lot of different ways to budget. Before you start building your spending plan, it helps to understand what budget planning means and which type of budget will work best for you.
Budgeting might also be referred to as budget planning. Budget planning is the process of creating a spending plan, or a comprehensive accounting of your income and expenses.
When you make a budget plan, you’ll tally all your sources of income and compare your earnings to your fixed and variable expenses. Fixed expenses are expenses that don’t change much month to month: think of your rent or mortgage, car insurance, or phone bill. Variable expenses can go up and down: think of things like groceries or gas, as well as discretionary spending like dining out or non-essential shopping.
There may be as many different types of budgets as there are unique financial goals! The most common budget types and budgeting rules you might hear about include:
Take a deeper dive into these different ways to manage your money and discover which budgeting approach aligns best with your financial goals.
There may be many different types of budgets, but the path to creating any spending plan is the same. It can be boiled down to these 6 simple steps:
Ready to build your spending plan? Take a deep dive into the steps in budget planning.
The web is awash with tools and resources that can help you build your budget and make a spending plan. A simple sheet that tracks your money in and money out is usually the easiest way to get started. You can create your own budget spreadsheet or download an existing resource, like an Excel budget template or Google Sheets budget template.
Click here for an example of a helpful budget spreadsheet and find tips to balance your income and expenses for financial success.
No matter the format you decide to use, Marine Credit Union has a variety of calculators and other budgeting tools that can help you fill in the details.
Creating a personal spending plan helps you gain greater awareness of your spending habits. It can help you keep track of money in and money out, Plan for future financial goals, and avoid overspending. Ultimately, budgeting helps you gain financial control.
Simply put, budgeting is tracking money in and money out. This is something you can do in a simple spreadsheet. Start by listing your sources of income and your fixed expenses. Then, categorize your variable expenses and allocate amounts to each category based on your income and financial goals.
Ready to get started? Here are 6 Steps to Create Your Spending Plan.
Yes, budgeting can help you prioritize your spending so you can allocate more money toward savings. Whether you have short-term savings goals (like taking a dream vacation) or long-term savings goals (like building a nest egg for retirement), budgeting provides a roadmap to get there.
If you have varying income levels, consider using a flexible budget that adjusts based on the amount you bring in each month. A flexible budget allows you to allocate percentages rather than fixed amounts to categories like needs, wants, and savings.
Learn more about the different types of budgets and discover which budgeting approach aligns best with your financial goals.
We get it—sticking to a budget is easier said than done. If you find that you’ve overspent in any of your expense categories, adjust your budget for the following month to compensate. This might mean you enjoy one less meal out or forgo a few afternoon lattes. Review your budget and look for other areas to cut back or reallocate funds.
It’s important to have savings, but if you have debt, you may be faced with a decision about how to use your budget best. The answer to this tough question depends on your current financial situation and goals. You may be able to strike a balanced approach by prioritizing high-interest debt while saving a small amount for emergencies. Check out our Debt Payoff vs. Savings Calculator to help determine the right approach for you.
Setting a realistic goal is the first step in sticking to a budget. Creating a monthly spending plan doesn’t mean you have to take drastic measures to reduce your expenses or increase your savings. Even small changes in how you manage your money can make a big difference to your financial well-being.
Once you have a realistic goal in mind, track your progress by reviewing your budget regularly and making adjustments as needed. You might also help your new habits stick by using budgeting apps or spreadsheets to stay organized.
We recommend reviewing and updating your budget monthly. This will help you track your progress and make minor adjustments month to month. Remember, too, that your spending plan will change at different stages of your life and financial maturity. Life changes that impact your financial situation—like a job loss or starting a family—will require you to update your budget to match up with new goals.
Sometimes, even the best-laid plans go awry. If you don’t feel like your current budget is working for you, take a closer look at your budget categories and spending habits. Consider opportunities to earn extra income, reduce miscellaneous expenses, or make other adjustments to better suit your financial situation. You may also want to seek advice from a financial advisor or counselor for personalized guidance.
What are the different types of budgets?
What are the best budgeting tools?
6 Steps to Create Your Spending Plan
Household Cash Flow Tracker Debt Payoff vs. Savings Calculator