Adulting 101: How to Create Your First Budget

When you were a child, your parents may have given you an allowance or at least the chance to do household chores and earn a bit of money. Now that you are an adult, mom and dad are no longer your primary source of cash, so managing money is even more critical.

The personal budget is the cornerstone of every sound financial plan; without one, it will be hard to move forward with your adult life. Budgeting is all about knowing where your money is coming from and where it’s going. Here is how you can get started.

Step #1 – Find the Right Tools

The first step on your road to a personal budget is finding the right tools. Thanks to the internet, that is easier than ever. If you want to go old school, you can use a pen and paper or a spreadsheet, but digital tools might make your job easier.

There are apps dedicated to financial planning and personal budgeting, so pick your favorite and download it to your phone. Once you get used to using the app, you can input your information and start building your first budget.

Step #2 – Set Up the Categories

If you download a smartphone budgeting app, it will likely contain a number of preset categories, including lines for rent, groceries, gas, and food delivery. Those preset categories are a good start, but they may not be enough to capture your spending fully. Adding additional categories will help you fine-tune and optimize your budget, making it easier to track your money.

Step #3 – Assess Your Income

Your budget will contain two separate sections: income and outflow, also known as expenses. Now that you have a budget tool on your phone or elsewhere, it’s time to assess your income sources.

If you have a single part-time or full-time job, this part should not take long at all. Grab your pay stub and record the numbers in the net pay column. Things get more complicated if you also have a side hustle or other source of income, and you will need to include those figures on the positive side of the ledger.

Step #4 – Track Your Spending

The next step in creating your budget is to track your spending carefully. Once again, this task can be made easier through technology — some apps allow you to track your spending automatically or at least enter each purchase you make.

Your chosen budgeting app may even include this feature, so look around and see if it can help. If not, you can download plenty of spending apps — some can even be linked to an account or credit card for easier and more accurate tracking.

Step #5 – Add It All Up

Now that your budget’s income and spending portions have been laid out, it’s time to add it all up. This can take some time, but those will be hours and minutes well spent.

Hopefully, your budget will show that you are spending less than you make; if so, you are already on the right track. If the budget shows a deficit, it is time to cut back. It can be challenging to spend less, but running a monthly deficit is even worse.

Step #6 – Revisit and Fine-Tune Your Budget

The final step on your road to a personal budget is to fine-tune the spending plan. As time passes, you will get a feel for where your money is going, making it easier to trim expenses in the future.

It is essential to know that creating a personal budget is not a one-time exercise. To be effective, the budget must be reviewed and fine-tuned every month. If you want your money to behave, you need to watch those dollars closely.