Home 9 Budgeting 9 Steps to Creating a Budget: Your Path to Financial Freedom

Steps to Creating a Budget: Your Path to Financial Freedom

Aug 2, 2023

Today, let’s dive into something awesome – creating a budget! 

Trust me, it’s a total game-changer that’ll give you all the power over your money and take you on a journey to financial freedom. 

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So, grab your cup of your favorite drink, snuggle up, and let me show you the ropes!

Why Budgeting is the Bomb!

Let’s cut to the chase – budgeting is a game-changer and will give you financial freedom! 

It’s like having a superpower that allows you to see exactly where your money goes and make informed choices. 

Think about it; when you have a budget, you can finally say “goodbye” to those paycheck-to-paycheck days and “hello” to financial confidence.

Assessing Income and Expenses

Listen, let’s get real about your money. Only you have control of it.

Sit down with your bank statements, receipts, and credit card bills – everything

Look at your income sources, whether it’s your salary, side hustle earnings, or any other sources. 

Now, take a deep breath, and let’s face those expenses! 

Identify your fixed costs (such as rent and utilities) and your variable expenses (dining out, shopping sprees, etc.). You’ll see patterns and areas where you can cut back or invest more wisely.

Setting Fabulous Financial Goals

Close your eyes and dream big! 

What do you want to achieve financially in the next year? Two years? Five years? 

Want to travel the world, start a business, or pay off that student loan? 

Make those goals tangible and specific and create a sinking fund. For example, if you want to save $5,000 for a dream vacation, break it down into smaller monthly savings targets.

So if your trip is in 12 months break down your $5,000 vacation goal per month and save $416 per month.  You can even break it down further and save it by pay period. So if you are on a biweekly pay you can save $208 per paycheck. That way, you’ll stay motivated and focused on your journey.

Check out What Is a Sinking Fund And How To Get Started. This article will give you a breakdown of exactly how to make it tangible to achieve your financial goals.

Organizing Your Budget Into Categories

Time to get organized, my friend! 

When creating a budget it’s important to separate your budget into categories. Everyone will have different categories so make sure you create the budget categories that fit your lifestyle and goals. 

Here are some common categories to help you get started:

Essential Expenses: 

  • Rent/mortgage
  • Utilities
  • Groceries
  • Transportation (car payment, gas)
  • Insurance

Discretionary Spending: 

  • Dining out
  • Entertainment
  • Shopping
  • Hobbies
  • Self-care

Savings: 

  • Emergency fund
  • Vacation fund
  • Retirement fund
  • Investment account

Debt Repayment: 

  • Credit cards
  • Student loans
  • Medical Bills
  • Personal loans, etc.

Make sure to customize and add categories that matter most to you and your budget!

Allocating Your Money Like a Pro When Creating a Budget

Now for the fun part – allocate your money!

This is where the magic happens! 

Allocate a percentage of your income to each category. 

Remember, there’s no one-size-fits-all approach. 

For example, if you want to build up your savings and pay off debt simultaneously, try the 40/30/20/10 rule.

Here’s how you can allocate the 40/30/20/10 rule to help you save and pay off your debt:

  • 40% to essential expenses
  • 30% to discretionary spending
  • 20% to savings
  • 10% to debt repayment.

Adjust these percentages as needed to make them work for you and your budget!

Embrace Budgeting Tools and Apps

Ready to take your budgeting game to the next level? 

There’s a treasure trove of budgeting tools and apps out there. Make sure you choose the one that you will be mostly consistent with.

Personal finance apps like EveryDollar, PocketGuard, You Need a Budget (YNAB), and Mint can be your new best friends! 

Most budgeting personal finance apps will sync with your bank accounts, which help you track expenses effortlessly, and even send you budgeting tips and reminders. 

It’s like having a personal finance guru right in your pocket!

Saving Strategies – Creating a Budget with a Cash Envelope System

Saving money doesn’t have to be a snooze-fest. Get creative! 

Try the “Envelope Method.” For instance, for discretionary spending like dining out and entertainment, withdraw cash and put it in designated envelopes for each category. 

When the envelope is empty, you know it’s time to cut back. 

Plus, the tangible nature of cash can help you think twice about those impulse purchases.

Check out our guide on How To Create A Winning Cash-Based Envelope System Budget to help you better understand how to use the cash envelope system.

Tackling Your Debt Like a Champ

Debt can be a real buzzkill, but we’ll conquer it together! 

Focus on paying more than the minimum payment on high-interest debts. This will help you save on interest and tackle your debt faster. 

Consider the “Snowball Method,” where you pay off the smallest debts first. The Snowball method of tackling your debt helps you stay motivated when you see the debt being paid off.

As you conquer each debt, you’ll feel a sense of accomplishment that keeps you motivated.

Handling Irregular Income

Do you have an irregular income? If so, no problem, we got you covered! 

Start by creating a “Baseline Budget” meaning that you will use the lowest average monthly income when budgeting. And when you make extra money, throw it into savings for upcoming expenses or investments. 

Woman holding money and blowing kiss with title Create A Budget From Scratch

This way, you can enjoy the good months and still be prepared for the lean ones.

Navigating irregular income requires a flexible and adaptable approach and you got this!

Staying Motivated on Your Budgeting Journey

Budgeting can be a rollercoaster ride, but we’re in this together.

It’s a journey, and like any adventure, it has its ups and downs. 

Celebrate your wins, no matter how small. Did you stick to your budget for a week? Treat yourself to a small indulgence!  But make sure you have a budget line item for the celebratory events.

A good idea is to keep a “Money Journal” to jot down your progress, setbacks, and financial achievements. A money journal is like your financial diary, it’s a reminder of how far you’ve come and how strong you are! 

Staying motivated keeps you focused on your financial goals.  If you need additional inspiration, check out the article Stay Motivated To Get Out of Debt.

Periodic Check-Ins and Adjustments

Life changes, and so does your budget. Regular check-ins are a must! 

Time flies, and so can your expenses if we’re not mindful. 

Make sure to schedule your regular budget check-ins – at least once a month. This will allow you to assess how you did, celebrate your achievements, and adjust your budget as needed. 

Since life changes often, so do your priorities, and it’s okay to tweak your budget along the way. It’s all about keeping up with life’s twists and turns. This helps you to stay on track and make adjustments as needed.

Seeking Support and Cheerleaders

Remember, you’re not alone on this budgeting adventure – we’ve got your back! Make sure to join our Facebook Group for content and inspiration.

Share your budgeting journey with trusted friends and family. 

If you need an expert on your side, don’t be shy to seek advice from a financial expert or attend workshops. Surround yourself with a supportive network to cheer you on!

Final Thoughts

Congratulations, finance-savvy you! 

You’ve unlocked the power of budgeting and set yourself on the path to financial freedom. 

Embrace this journey, and remember that it’s about progress, not perfection. 

Celebrate every step, no matter how small. 

With your budget as your compass, you’ll navigate the financial waters with confidence, empowering yourself to live the life you’ve always dreamed of. 

Keep hustling, stay fierce, and remember that your financial future is brighter than ever before! 

You’ve got this!

The Budget Academy
Fab Kellum author of the Girl, Get Out of Debt! blog

Hey you! Welcome to The Budget Academy. I am Fab, a survivor, a mom, and an entrepreneur at heart. Just like many, I have overcome financial struggles and I want to share with you how I did it.  I have a background in Finance and Real Estate and I’m passionate about helping others succeed and achieve financial freedom.  So, don’t be shy, let’s connect and start this journey together! Learn more about me here.