How To Create A Budget In 2023

Money Management

Last Updated Feb 9, 2022 | by Kirk Anthony | 10 Min read

the Best way to budget in 2022

One of the biggest struggles Americans run into is the ability to control their personal finances. This is one reason having a budget is so important. If you’ve never set up a budget to track your income and expenses, 2022 is the year to start. One of the best options for budgeting is known as a zero-based budget. In other words, your goal is to make sure you send every dollar to the appropriate line item in your budget every month. Nothing should be left over when you set up your budget.

Sounds easy doesn’t it, that’s because it is! It’s simply a detailed plan for your money.

track income

Tracking every dollar of income that you expect to bring in for the coming month is the first thing you’ll want to do when you’re setting up a zero-based budget. If you have a salary at a regular job, you’ll want to start there. Additionally, you’ll want to add in any income from a weekend or evening job or any side hustle that brings in money. If you expect to have interest or dividend income rolling in, you’ll want to add that to your income. Every dollar that you expect to bring in during the month, regardless of the source, should show up at the top of your budget. You’ll want to track your income in a spreadsheet program like google sheets or through a budgeting app like Mint or Personal Capital.
If you don’t have access to any technological budgeting options or you’d rather not track your money over the Internet, you can also use a regular piece of paper.

Write down your expenses

After setting up the income portion of your budget, it’s time to shift over to the expenses side. You’ll start with any fixed expenses you might have. This would usually include any rent or mortgage payments. It would also include your estimate for your utilities and a car payment.

If you’ve paid off your cars, there’s no need to include a line item for a car payment. You’ll also want to include any variable expenses like groceries and entertainment. You’ll have more flexibility in the areas that are variable. If an unexpected expense comes up, you can possibly take care of it with your monthly cash flow if you can cut your expenses in a variable area. If you have a credit card or student loan debt, you should also have a line item for each of these expenses in your monthly budget.

You might also have some expenses that only happen once or twice a year. For example, you know you’ll probably buy some Christmas gifts, and you might get a slight discount by paying for your insurance premiums annually or semiannually. This is where you’ll want to set up a sinking fund.

You can set up a savings account at your bank and transfer the money you’ll need for these expenses each month. If you’re expecting to spend $600 for Christmas presents, you can transfer $50 a month from your budget to your sinking fund. Keep in mind that these are expenses you’ll need to pay at some point in the future. You should also have a category for miscellaneous expenses that might not fall into any other budget categories because unexpected expenses will show up on a fairly regular basis.

After you’ve listed your expenses, you’ll also want to use some of your income for savings. This might not be possible when you first start your budget. If you don’t have enough money to save, you’ll want to start trimming your expenses. This might mean cutting cable. It might mean cutting coupons or buying generic brands at the grocery store. It might also involve looking for extra work so that you can bring in more income. Once you have a little bit of wiggle room in your budget, you’ll want to place that money toward either an emergency fund, retirement savings, or accelerated debt payoff. You’ll want to pay off debt and save up an emergency fund before putting much toward retirement savings.

subtract expenses from income

You’ll want to put all of your income toward some bill, savings, and investment vehicle. This is the main focus of setting up a zero-based budget. You spend all of your money every month. That spending might involve putting money into an emergency savings account or a retirement account, but you are buying additional security or investments in this manner.

It might be hard to get your budget to zero out each month. This will especially be the case in the first few months that you start to create your budget. However, over time, you’ll be able to get closer to making your income equal to your expenses. If you find that you have to overspend in one area, you’ll need to cut from another.

Paying yourself first via your emergency fund, debt payoff or retirement savings is a great way to make sure that you’re able to improve your net worth over time. If you have money left over after listing your expenses, you’ll need to put that money somewhere. Debt repayment or savings would be great options.

Track your spending

It’s great to put a budget down on paper or in a spreadsheet. However, it will do you absolutely no good if you don’t track your expenses throughout the month. Some of the leading personal finance bloggers on the Internet said that tracking their spending to the penny each month was the biggest key to their financial success.

Every time you spend a dollar, you should deduct it from your budget. For example, if you have $1,000 in your budget for groceries, you might spend $130 on food in the first week of the month. You’ll need to deduct that expense from the $1,000 in your budget. This would leave you with $870 for the rest of the month. Once you pay your mortgage, you’ll want to subtract it from your budget. This will let you know at any given time how much money you have left to spend. Once you spend all of the money you’ve allocated for a line item, you’ll have to stop spending or find an area of your budget that still has money left over and make a transfer.

If you want to take a more passive approach I would suggest using Mint. If you choose to use Mint, tracking your spending will generally be a passive exercise. Any time you make a payment with a debit or credit card that’s linked to your Mint account, the app will automatically deduct those expenses from your budget. You’ll still have to monitor any cash transactions and manually post them into your budget app, but the amount of work associated with tracking your expenses will be minimal.

If you get to the end of the month and find that you did not actually spend all of your income for the month, that’s a great problem to have. This is money that you’ll want to shift over to the savings or retirement line item. If you have outstanding debt, you could also use the money to accelerate the repayment of your debt.

Budgeting with irregular income

If your income varies from month to month, you can still set up a budget. You’ll want to focus first on paying for your necessities. These expenses would be tied to food, shelter, and transportation. If you get additional income during the month, you’ll then start paying off the other bills on your list in order of relative importance. Insurance and debt would be more important than a new pair of pants. As you’re able to build a buffer over time, it would be a good idea to keep some extra money in your checking account to smooth out the lumps in your income.

why is budgeting so important?

Once you set up a zero-based budget, you’ll start to gain more control over your money. You’ll stop wondering where all of your money went over the previous month. You’ll start to think critically about every expense and scrutinize where your money is going, and that’s a great way to avoid spending more than necessary. Once you start becoming more intentional with your money, you’ll be on your way to building your net worth and cutting down on the level of stress that’s tied to money. There’s no time like the present, and today is the best day to get started on your budget.

If you’re apprehensive about setting up a budget because you feel it will constrain your life, try thinking about it in another light. Your budget gives you the freedom to spend. If you’ve budgeted $2,000 for a vacation, you don’t have to worry about your expenses as long as you stay below your limit.

Also, by choosing to send money toward an emergency fund, debt repayment, or retirement savings, you’ll be on your way to building long-term wealth. Saving money gives you more options in life, and a budget is a great way to ensure that you start saving money today

So don’t wait around, get started today with Mint!