How to Make a Budget

Budget... or Spending Plan?

student reading book on funding your education

Now that you have identified your goals, you’re going to need to evaluate your budget. Maybe you feel like you don’t have a budget because as soon as your money comes in, it feels like it’s already spent. Everyone has a budget; sometimes you just don’t know it! Do you pay bills? Purchase groceries or food? Buy an occasional cup of coffee? If you ever do any of these things, you are working with a budget.

Maybe the word "budget" sounds too restrictive, like a diet. If so, make your "budget" a spending plan. With a spending plan you will take control of your money by choosing how you want to spend and save your money each month.

At its most basic, a spending plan has two major parts:

money coming in each month
money going out each month
your total income:
your total expenses:

Counting your student loans as income

Be careful counting educational loans as income! When used wisely, loans can make your education possible, however you want to use loans only to fill the gaps for things you truly need. What feels like income today will only decrease your income later (because you have to pay it back), and likely for a lot longer than the time it took to rack that loan debt up! Find out how to check loans at Know what you owe.

Watching out for less frequent expenses

To have a realistic spending plan, it is also important to add things that you pay for one or more times during the year but not every month, for example car repairs or insurance. Take the amount you estimate it will cost you for a year and divide by twelve to get your monthly amount. Save that amount each month, then it will be easier to pay these larger bills when they come in.

What's in your spending plan?

Say your spending plan called for $400 per month for groceries, but somehow you spent $600. How did that happen?! Find out! Keep track of your spending for a month with a daily spending diary. Write down every amount you spend and what you bought for a full month. Writing it down helps in two ways:

  1. You are more aware of how often you make purchases… sometimes helping you spend less
  2. You can see exactly what you spend your money on
"Since taking Financial Survival and tracking what I spend every month, I've seen little amounts of money add up to a large lump sum that I could have used on a bill, or saved. I will keep practicing to be frugal and know where my money is going."Erinn Russell CG114 student

By tracking, you may find that you really need to update your spending plan for groceries, or you might find that you can select off-brands or shop at less expensive stores to meet your plan. Either way, you have more information for your plan!

Did you know...

Tracking takes practice! Try not to get overwhelmed or discouraged — keep working at it until you get your spending under control. Realize that you are human and that you will occasionally overspend. But try to make sure your spending decisions are intentional — not emotional or out of control — and over time you will have a spending and saving program to be proud of.

Show me the money!

The "envelope system" is another way to organize your money. This cash system allows you to literally see where all the money goes. Cash goes into an envelope assigned to an expense (as shown). Once the money in the envelope is spent, it’s gone! If you use the cash system, make sure you have a secure place to store your envelopes of cash (like a wall safe or a safe deposit box at a bank).

envelopes with example money amounts
Did you know…

"Pay yourself first" is great advice to follow! Set aside a certain amount every month in savings, just like you budget for expenses such as rent, food and transportation. One of the least painful ways to do this is to have money automatically deducted from your paycheck and deposited into a savings account. By doing this, you won't see the money and will get used to not having it. Instead, you will gain satisfaction from seeing your savings grow. If you set aside $50 every two weeks, in one year you will have saved $1,300 plus interest!

Spread your wealth

"Learning how to budget and spend differently has given me the opportunity to attend PCC full time. With this knowledge, I am a better person today. Now I follow my budget, I am able to focus on school and not worry about money. Since taking CG114 my grades have improved in all my classes, and I am graduating in June 2012!"Jessica Nevers CG114 student

The spreadsheet system is another way to track your spending plan. This plan requires you to identify your "planned" amount and then go back when the income has been received or expense has been paid and record what is actually spent, helping you see exactly where you are over or under on your spending plan. Many banks now offer some version of this system to customers.

Did you know…

It's important to balance your spending plan once or twice a month. To do this, subtract your total cost from expenses from your total income. Is there money left over? Great, you can save more for your long-term financial goals! Are you in the red? Then it's time to make changes. There are two solutions to this problem, cutting costs or increasing income.