Making A Simple Budget – A First Timer’s Guide

There are a lot of people in Generation Y that have never actually attempted to make a budget and have never experienced the usefulness of seeing all of your income and expenditures on a single page. Here’s a step-by-step guide to preparing a budget using only free tools.

First thing, learn how to use a simple spreadsheet. There’s a great one available for free at Google Spreadsheets that’s available at any internet browser. You can use it to save your budget and work on it any time you want. Unfamiliar with using a spreadsheet? ComputerWorld has an excellent Google Spreadsheets tutorial that should give you more than enough basic information so that you can assemble your own budget.

So let’s get started.

Make a list of what you spend in a month. I usually recommend three columns: one containing the place you spent the money, another containing the amount you spent, and a third noting what exactly you spent it on. This lets you quickly see where you might be spending the most frivolous money.

This table should include everything: paid bills, shopping, housing – any method by which money leaves your possession in a month should be listed here.

At the end of the month, add up this list and gasp. It’s often amazing how much we’re spending, especially without the constraints of a budget.

Sort these expenses by category. You can make as many categories as you like; I recommend at the bare minimum “housing,” “utilities,” “automobile,” “food,” “household expenses,” and “entertainment.” Depending on your shopping habits, you may wish to include any number of categories for this.

Once you’ve decided on your categories, sort all of your expenses for the month into these categories and add up what you spent in each. This will be the backbone of the budget that you prepare for the next month.

Make a new spreadsheet that will actually be your budget for next month. It should have four columns in it: categories, what I spent last month, what my spending target is this month, and what I’ve actually spent this month. At the bottom, add another row that contains how much you made last month, how much you plan to make this month, and how much you actually do make this month.

Below that, subtract your total expenses from your income and see where you’re at. If this is your first time budgeting, there’s a good chance that you’re spending more than you make, or else you wouldn’t be taking the initiative to learn how to budget. Now, go back to each category, look at what you spent in that category, and decide where you can trim some fat. Maybe you can spend less on clothes or not eat out as much. The goal is to find areas of unnecessary spending and try to cap that spending so that the total at the end of the month shows you bringing in more than you’re spending.

Once you’ve set some realistic targets, spend the month sticking within those targets. Keep a categorized list of your spending and regularly update your budget with your totals in each category along with any pay you receive.

Your first month is likely to have problems as you realize that it’s hard to get off the routine of spending. That’s OK, just keep making an effort and you’ll eventually get there. Another nasty surprise is irregular expenses.

Once you’ve made it through a month using your budget, congratulations! You’re on the road to success! Now you can really see where the weaknesses in your budget are; you can readjust some amounts in each budgetary area and hopefully peel off a little bit more unnecessary spending. Don’t worry if you still go over the first few months; it is not easy converting your mindset from an overspending one to an underspending one. Just keep trying – thinking about it and trying to make changes is half the battle. It’s much like riding a bicycle; you’re going to fall off a few times at first.

I’m speaking from personal experience here; my first two monthly budgets were disasters, but I learned along the way and now I have a pretty nice surplus each month.

The most important thing is not to let small failures get you down. Look at the bigger picture of things; you’re working to get your situation under control.

If you need still more help, you should explore the archives of The Simple Dollar. Try searching for your problem areas using the search form in the upper right of each page; entering things like credit card or saving or armageddon will point you to many useful tips and ideas for how to rearrange your finances a bit.

Just remember that you’re not alone and everyone who takes control of their finances goes through the tough process of learning how to do it.

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  1. One of the reasons people don’t build a budget is because they don’t want to take the time to create it. The fact is, you’re building a living budget every day.

    Just download your transactions for the last few months from your various financial institutions and use those as the starting point for your budget.

    You’ll have the numbers in seconds, then you can start analyzing them and deciding what changes to make in your spending habits.

  2. Fahn says:

    I’m a 24yr old Post-It junkie who gets paid bi-monthly, so I write down my bills for the first half of the month from the 1st-15th and then from the 16th-31st. I stick each post-it note in my planner on the 1st and 16th day. I get a sense of accomplishment when I get to mark off all of my bills that I’ve paid for, including paying myself (the #1 thing on that list). Then I get to toss that sucker! Sounds crazy but it’s fun to me because I’ve boosted my IRA, Savings AND checking accounts by almost 500% in the last few months.

  3. Sunil says:

    I used an Excel spreadsheet for a few months last year, then somehow stopped. After coming across this site Ive decided to start again. Thanks.

  4. Alicia says:

    Thanks for this, this was a super simple way for me to design a budget. I never totaled up what I had actually spent the previous month. That gave me some categories that I wouldn’t normally have put in a budget, instantly setting myself up for failure. I feel like I will be more successful with this new budget.

  5. Steve in W MA says:

    how bout these for columns: previous balance (make it zero for the first month, budgeted amount, amount available (add up the first two columns to get this), amount spent, and amount remaining/new balance.

    Spend by the figure in the last column. At the end of the month, roll that figure over into the first column of your new month’s budget and proceed.

    Basically, when you do it by this, you can spend by your “amount available to spend/new balance” every month and ignore for the most part your bank balances.

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