The Basics of Creating Your First Budget

Take the time and make a basic budget to keep your finances afloat

Are you preparing to graduate? Congratulations on taking the big step of moving out into the real world. The autonomy is a great feeling, but it comes with its share of responsibilities, such as handling your own finances. Creating a basic budget will help you keep track of your income, expenditures and savings. All it takes is a pen, paper and about 30 minutes.

Here are the steps you should follow, and each should take less than 10 minutes:

Discern your overall income
Do you have a full-time job where you obtain a set income each pay period? How about a part-time job (or two) at which your hours are unsteady? The latter is the more complicated aspect of step one, so you first need to add up how much you make after taxes from every income source you have — use the minimum amount you will bring home as a basis if you work varying hours each week. It is better to under budget than to go over budget.

List your fixed expenses
Next, you need to list all the expenses you have each month that never vary.

“Your budget will need to reflect the fixed costs of living for your new lifestyle, including rent or housing payments, utilities, car payments, credit card payments and other expenses you don’t expect to change each month,” says Sabah Karimi, columnist for U.S. News & World Report Money.

Identify new expenses
This includes student loan payments, health insurance and the like — things you aren’t used to paying on your own. These are likely fixed expenses but may not be, which leads you to the next step.

Think of all your variable expenses
Any expense that changes from month to month should be listed here. That could be those bills that come regularly yet aren’t always the same amount (i.e., utility payments, gasoline, grocery tab), or expenses for other travel, entertainment, etc.

“You decide how much of your monthly income goes toward these purchases, and you can adjust the amount at any time. Prioritizing what’s most important to you after your fixed and new expenses, and your savings are taken care of, is one of the crucial aspects of putting together a budget,” Karimi says. “Create categories and play around with different numbers to figure out what you are comfortable with and what you can truly afford.”

Decide how much you want to save each month
There should always be a line in your budget for savings. It doesn’t have to be much, but putting aside a percentage of your pay each month will give you a nice nest egg for the future or in case of emergencies.

With any luck, your expenses will be less than your total income. If not, some of your variable expenses need to be reconsidered to make your budget work. Many people opt to put this hard copy of the budget into a spreadsheet or other budgeting tool, but it’s not always necessary. As long as you stick to your plan and update it as needed, your finances should be in good shape.