Step-By-Step Guide On Making Your First Budget

SO, if you’re ready to dive in, grab some paper and a pencil, and open up your bank accounts. While you’re at it, get in some comfy clothes, light a candle, and get a snack. Here is my step-by-step guide on how to make YOUR first budget!

Step 1: Calculate Your Net Income

The first thing you need to do is figure out exactly how much money you’re bringing in each month. This means looking at your paycheck after taxes (aka your net income), any side hustle income, and any other money you regularly receive. Be sure to make this number as accurate as possible. If you can’t be 100% sure the number is precise, it is ALWAYS best to estimate on the lower side. This way you aren’t budgeting money you don’t have.

• If you’re salaried, your income will usually be the same each month, so this is straightforward.
• If you’re paid hourly or freelance, your income might fluctuate. In this case, take an average of the last 3–6 months to get a realistic number.
• Write down this number—this is your starting point. We’ll call it your Total Income.
• If your income changes week-by-week, you can always write a weekly budget instead of doing it by the month.

Step 3: Subtract Your Expenses from Your Income

Now that you have both your income and expenses written down, it’s time to do some quick math. This is the step where you find out how much money you’ll have left over after paying for everything that keeps your life moving.

• Take your Total Income and subtract your Total Monthly Expenses.
• If the result is positive, congrats! You’re living within your means, and now you can figure out where to put that extra cash (savings, paying down debt, or investing). 
• If the result is negative, don’t panic. This is the moment when you can start making adjustments to your spending and regain control of your finances.

Step 4: Set Financial Goals

Now that you know how much you have to work with each month, it’s time to set some financial goals. These goals will keep you motivated to stick to your budget.

Here are some examples of common financial goals:

• Build an emergency fund (aim for 3-6 months of living expenses). Then, consider stashing this in a High-Yield Savings Account such as CIT Bank’s Savings Connect Account so you can earn interest just for having your money in the account.

• Save for a big purchase (vacation, car, house down payment) or a small purchase (new purse, football tickets, new laptop, etc..)

• Pay off any debt you may have. Depending on how much interest your debt is accruing, this may be your first step. Pay off any high-interest debt you have such as car payments and credit cards. Then, focus on student loans and lower-interest debt.

• Do future you a favor and invest in a retirement account or the stock market.

• Pro tip: Break big goals into smaller, manageable chunks. For example, if your goal is to save $5,000 for an emergency fund, aim to save $500 per month, or even just $20 a week until you accomplish your goal!

Step 5: Adjust and Categorize Your Spending

This step is especially important to those of you who had a very low or negative number when subtracting your Total Expenses from your Total Income. Take a close look at your variable expenses and see where you can cut back. Maybe you’re spending more on takeout than you realized, or you have subscriptions you barely use. The goal is to make sure your spending aligns with your priorities and financial goals.

Here are a few areas where you might be able to trim:

• Groceries: Plan meals and make a list to avoid impulse buys.
• Dining Out: Limit to once a week, or try meal prepping.
• Subscriptions: Cancel or pause any services you don’t use regularly.
• Start by setting a budget for each category—what’s reasonable based on your spending habits? For example, if you’ve been spending $100 a week on dining out, try cutting it to $60 and see how it goes. Small changes add up!