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Build your First Budget in 6 Steps

Written By
Lloyd Brian Laurilla

Published on
Jun 29, 2021

Reading time
4 mins

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Budgeting is one of the most empowering things we can do for our finances. It points us to where our money should go instead of wondering where it went. Here are six quick steps to get you started on building your first budget.

1. Figure out how much your monthly income is

The first step in creating a budget is to know how much your income is. If you are working for full-time job, this is your net salary. You can also add any side hustle income you have. Or if you are married or in a co-living situation, you can choose to combine the two incomes for the household budget. The key in this step is you have a clear number you’ll be working on as you make your first budget.

2. List down all your regular bills and expenses in a month

Now that you have determined your income, the next step is to know your budget expenses. Expenses are of two variants – fixed and variable. Fixed expenses, just as what we learn in school are those expected bills needed to be paid every month. Your house rent, postpaid phone bill, internet bill even your monthly savings and investments goes here. Variable expenses, on the other hand, are the complete opposite. These are expenses that can change on a month-on-month basis such as transportation and food allowance. Make a list of all your regular bills and expenses in a month based on these two variants. You need to also jot down how much you spend for each expense.

3. Estimate your spending percentages

Typically, our expenses are categorized into three – Needs, Savings & Investments, and Wants. Needs are essential expenses that you need to pay no matter what. This includes house rent, food/grocery and/or transportation allowance, and utility bills. Savings and Investments are money towards your financial security. This could incorporate your loan payments, short-term and long-term savings as well as your investment in mutual fund. Wants are the variable expenses that doesn’t have that much impact for you to Now, how much of your income will go to each of your expenses? There is a known rule called 50-20-30 suggesting that 50% should go to Needs, 20% to Savings and Investments, and 30% to Wants. Play on the ratio and determine what spending percentage match your salary.

4. Include amount for your savings and investments

Do not forget to save and stay invested. Your savings may pertain to your emergency fund which is 3 to 6 months’ worth of your monthly expenses. Your emergency fund is your first line of defense should something unexpected happen like job loss, medical emergency, and/or death in the family. You can also save for short-term goals like future travel fund or child’s tuition fee. Lastly, don’t forget to set aside money and invest. Putting money on your mutual funds, such as Equity Fund, Balanced Fund, Fixed-Income Fund, and more. Prioritize your future self rather than focusing on short-term gratification.  

5. Track every peso that you spend and where it went

A good budget is not complete without tracking your expenses. Once you've set up a budget on each category the next big step is to track your expenses up to the last peso. Doing this step will help you stay within your budget. You can use an old school pen and paper to do this step or try downloading free budget apps.

6. Learn to adjust your budget

It’s also best to review your budget at the end of the month. This part will help keep yourself updated on your spending habits as well as whether you are acing your financial goals. Don’t forget to adjust your budget as new month comes in. Remember your first budget will not be perfect. What’s crucial is that you keep on trying, reviewing, and adjusting until you finally arrive on a budget that works for you!

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