Here’s how to create a budget for yourself

Making and sticking to a budget can help keep you on track for reaching your short- and long-term financial goals. But if you haven’t done it before it can feel a bit overwhelming. The good news is that it isn’t hard to get started. And you can (and should) make adjustments along the way.

Establishing a monthly budget is a basic financial practice that can help you meet your monthly commitments as well as put you in good shape to save money. You can get started in just a few easy steps.

1. Identify income and expenses

Start by listing your net monthly income — be sure to include all sources of income — and your known monthly expenses. Your expenses should include:

• Payments that you make on a monthly basis, such as rent or mortgage, utilities and your car payment.
• The average monthly cost of expenses that you pay quarterly, semiannually or annually, such as car insurance, property taxes and some utilities.
• The average cost of purchases you make each month for items like entertainment, dining out, dry cleaning, groceries, parking and gifts.
  
• Don’t forget “little” things that when added together may be a big cost, like that daily latte or buying lunch out.
• Estimate a monthly amount to set aside for unforeseen expenses like car repair or an emergency vet visit for your dog.
  
• Last, but not least, add in an amount for short-term and long-term savings. Saving is easiest when it’s a built-in part of your monthly budget.

2. Add it up

Add up your income and expenses. You’ll come up with one of three results:

• Your income exceeds your expenses. Great! Now you can look at using some of that “extra” cash to pay off credit card debt or to add money toward your short- and long-term savings goals.
• Your income and expenses are equal. This is good. But just to protect against the unexpected, or to meet other financial goals, consider cutting back on some of the “little” expenses. It can be as simple as packing your own lunch instead of dining out or taking the bus instead of driving. Doing so can provide a nice cushion when you need it.
• Your expenses exceed your income. This is a situation that you’ll want to look at carefully and take steps to correct. Below are tips on how to cut costs.

3. Make adjustments

Take a look at your budget and identify things you can eliminate or reduce from your expenses. Many options are likely to come from your list of “little” things. If you’re not seeing much there, try recording everything you buy over a period of a week or two. A month is even better. You may be surprised by how easy it is to buy “little” things that really add up. For example, a $5 latte every workday can add up to $100 a month and $1,200 a year!

There are lots of ways to cut back on expenses, here are just a few ideas:

• Get savvy with your grocery shopping.  Use coupons, digital deals, and smart buying habits to save big bucks.  
• Update subscriptions. Got a streaming service or gym membership that you don’t use anymore? Cancel them. 
• Lower your energy use. Switch to LED lights, lower the temperature on your water heater by a degree or two, and invest in a programmable thermostat.
   

Once you have your budget defined and any adjustments made, it’s a good idea to review it periodically, perhaps monthly, so you can make additional updates as your financial situation changes.

Inspired to save? Here are nine simple strategies for saving on daily expenses. Or if you’re ready to put your extra money to good use, get started with a savings account.