How to Create a Budget

Video Transcript

Until now we’ve focused on the money you spent and made in the past. In this lesson we’re going to take control of your financial future, and I’ve got one word to help you do it: “budget.”

A budget—which some people call a spending plan—helps you manage your money to meet current obligations and future goals. It’ll look just like the list you made for your last month of income and expenses, but this time you’ll list the money you’re going to make in the coming month, and how you plan to spend it.

Because you already know where your money’s coming from, you have an idea of how much you’ll bring in. You also categorized your expenses, so you know how much you need for necessities. So write them down and subtract the amount that you’ll spend on things like rent and food from your total income.

In the past, the money that’s left over might have gone to too many “want” purchases, but the beauty of a budget is that it allows you to make changes. If you spent more than you made last month, now’s the time to do something about it.

To create your budget, assign every dollar of income to a category of expense. Make sure to put aside some money for saving or paying off debt, but once necessities are covered, give yourself a little cash for entertainment and treats like eating out.

When you complete your budget, the total expenses you list should equal your income. This is because you have a plan for every dollar, and as long as you stick to it, your money will go exactly where you want.

A budget is the most important tool you have to take control of your financial future. If you want to make a change, or just make sure you’re using your money as best you can, a budget is the way to do it.