Learn the basics of how to create a personal budget, including 5 simple steps.
CONCEPTS
Use this video lesson on the topic to discuss the terminology and basic economic and related concepts of
- Income
- Spending
- Saving
- Budgeting
PROCEDURE
Hand out the worksheet below (see the GET LESSON button near the bottom of the page).
Show students the video and have and have them complete the worksheet. Then have a discussion about budgeting and the steps required. Review the questions on the worksheet.
GRADE LEVEL
7-12th grades
TIME REQUIRED
30 minutes
How to Make a Budget.
A budget is a plan that outlines how you intend to spend your money. It is important to find a way that you can track your finances. A budget is essential for most people, to see where their money goes each week, month, and year. It helps you take control of your finances, so you can save more money for your goals. Here we will set up a hypothetical weekly budget and show you five steps that you may use to help you create your own personal budget.
STEP 1: Calculate Income
Income is money you may get from your wages or other sources. It includes full-time jobs, second jobs, freelance pay, and any other ongoing source of income, such as income from interest and investments.
Your income is your total wages or salary less deductions for taxes, employer-provided health insurance and retirement plans. You can calculate an average amount if you don’t have a regular source of income.
STEP 2 – List Expenses
The next step after you’ve determined how much money is coming in, is to determine where it’s going. You can track and categorize your expenses to determine where you’re spending most of your money and where you might save the most.
List all expenses including your regular bills such as rent, utilities, and so on. Also include your irregular bills, such as quarterly payments such as insurance. Add up all your other expenses, such as groceries, gas and other bills. You should account for every dollar you spend.
Its easier to start by listing all fixed expenses. These are your monthly expenses such as rent, mortgage, utilities, and car payments. Next, list variable expenses. These are those that can change month to month like groceries, gas, and entertainment. Check your bank statements or bills to ensure you have recorded all your expenses.
STEP 3. Compare and Set Savings
After calculating your required expenses, the money left may be used either for additional spending or for savings. Spending money might be used for entertainment, dining out, and hobbies. Besides spending money, you should set an amount for savings. You can set a savings goal and use your budget to help you reach it. Savings is important because it can be a safety net in case you have unexpected expenses. A small amount saved every day can make a big difference.
For your budget, your income should equal all your expenses plus savings. This will ensure that every dollar you spend has a place within your budget. You can check your math if you aren’t sure. If the numbers don’t match, make adjustments where necessary. Try first to reduce some of your variable expenses if possible. Be sure to set spending limits that are specific and realistic for each expense category.
STEP 4: Track Spending
Track your spending once you have created your budget. This is the only way to see if your spending matches what you set in your budget. Use a notebook, app, or spreadsheet to keep track of all your expenses and the related spending categories.
STEP 5. Review and Adjust
So how did you do as compared to your budget? Were you able to match your budget? Do you need to make adjustments?
Once you have a detailed record of your income and expenditures, you can make adjustments to ensure you don’t spend too much and still have enough money for your goals. Your wants are the first place to cut. Do you have the option to skip going out for dinner and instead cook dinner at home? You may have already adjusted your spending to meet your wants.
Your budget should be able to accommodate you and your life. It’s important that you adjust your budget as your circumstances change. For example, if your expenses are increasing, you might need to find other ways to earn more money, or else you may need to cut back or adjust your savings goals. You might also be able save more if your salary increases or you repay some debts.
It is important to regularly review your budget and your spending once you have established it. This will ensure that you stay on track. No matter what reason, you should get into the habit to regularly reviewing your budget. Good luck with making and tracking your own budget. It’s a great tool to help you understand where your money is going to help you reach your financial goals.
