How to Create a Budget in 2024: Even If You Have Debt

3 min read

Anthony O'neal
How to Create a Budget in 2024: Even If You Have Debt

I want you to drop all of the things you think you know about creating a budget. Trust me when I say there are a lot of negative myths out there about creating a budget, the most important one is that it’s used as a way to restrict your money, when instead it’s simply a roadmap that guides you to financial success and debt-free life. 

Creating a budget doesn’t mean you have to completely restrict your money or make it inaccessible to you - after all, you’ve earned that money and you deserve to use it for things in life that make you happy, but there is a way to do that also allows you to make your money work for you and create healthy financial habits. 

The basics of a budget

In order to create an effective budget that works for you and allows you to reach your financial goals, there’s a few things that are helpful to understand. 

  • Expenses: generally speaking are bills that are paid or things that we pay for as part of our daily routines. Medical bills, car payment and insurance, phone bill, target runs, groceries, internet and utilities, gas for the car and more. While expenses can be put into categories, and can be a one-time expense or a recurring expense, it’s easiest to think of expenses as anything we spend our money on. 

  • Net income: when talking about individual finances, our net income is the paycheck we receive after all the deductions and taxes have come out. It’s your take-home pay. For businesses, net income is the amount the business has left over from income after wages, taxes, expenses, and the cost of goods or services sold are deducted. 

  • Financial goals: goals you set for yourself in terms of how much money you want to save, where you want to invest your money, or what you want to spend less or more on. 

  • Fixed expenses: this is one of the categories I mentioned earlier in the expenses definition. Fixed expenses are bills you pay for that stay relatively constant each month. Things like your car payment, rent, or mortgage payments. The reason this are important to understand is these fixed expenses are great when creating a budget, because they rarely fluctuate or change and are amounts you can rely on coming out on a specific date. 

So, now that I’ve covered the basics of a budget and what goes into creating one, we can actually get into the steps of creating a budget, even if you’re in debt. 

Creating a budget: step by step

There are five crucial steps when creating a budget, and each step can be repeated each month to readjust for changes in income and expenses. Remember, a budget is meant to be a roadmap or a guide to your financial freedom, not a strict all-or-nothing restriction on your money. 

List out your income 

First you need to figure out your income, which can look different depending on if you have a spouse or significant other you share your finances with or come together to pay bills. I’ll show you two examples of spousal income tracking and non-spousal income tracking. You’ll also want to know whether you get paid weekly, bi-weekly, or monthly. 

Partner 1

1st paycheck: $1,300 

2nd paycheck: $1,300 

Partner 2

1st paycheck: $2,500

2nd paycheck: $1,900

Total monthly income: $7,000

Each partner would have a separate list of their income. If one or both partners is paid weekly, there would be four paychecks a month instead of two. You want to adjust this section to fit the frequency of your paychecks. 

If you don’t have a partner or significant other that you’re combining income with, simply list out your income for the month. Whether you have a spouse or not, you want to make sure you’re including all of your income. If you have rental property income or a side hustle, add that as well. If your job is one that is commission-based or the amount you’re paid fluctuates, look at your paychecks over the previous few months and find out the lowest income made to start your budget with - it’s better to underestimate than overestimate when it comes to income. 

List your expenses

When listing out your expenses it can seem a bit intimidating, but a good practice is to list all of your recurring fixed expenses as well as the expenses that cover your home, utilities, food and transportation. These could look like: 

  • Gas
  • Car insurance
  • Car payment
  • Mortgage
  • Rent
  • Gas bill
  • Water bill
  • Electricity
  • Internet
  • Groceries 

After you have the basics covered, you’ll want to also list out all of your miscellaneous and spending expenses, ones that are necessarily recurring or fixed. This could be debt, childcare, personal spending and shopping, money you use towards fun activities or one-off experiences that are few and far between. 

If you’re struggling with this step, try listing out all your expenses, and don’t put them in any categories yet, just list them out. Once you have them all written, you can take them and go through a few questions: 

  • Is this amount fixed?
  • Does it recur every month?
  • Is it a one-off experience?
  • Would it be considered personal shopping?
  • Is it a form of debt I’m paying off?

Answering these questions with the list of expenses you made can help you categorize them and make it feel less overwhelming. Once you have your income and expenses sorted out, it’s time to subtract your total expenses from your total income. 

The budget equation 

In order to figure out how much money you have leftover from your income after all of your expenses are taken care of, you need to calculate the budget equation. The number you have after the equation is what you have left over to invest, build your savings accounts or start an emergency fund. 

Income - expenses = money to allocate elsewhere 

The important part is to not let the money leftover, after expenses are subtracted, to just sit there - you want that money to have a job too. This is important because in order  to create a budget that works and actually BUILD WEALTH, you need to have a job for all your money. A great way to have your money work for you is to invest in a high yield savings account like SoFi. This is a savings account that has a high interest rate, which for savings accounts is a goo thing. It means the money you put into a SoFi high interest savings account actually makes money for you. 

When doing this equation, there are a few different outcomes, you have money leftover, you have a $0 balance or if you have a negative balance. If you have a negative balance or if you break even after subtracting expenses, you’ll need to find a way to cut expenses or bring in additional income every month. Ideally, you’ll want to have money leftover to allocate to other spending categories to ensure you’re covered. Once you’re done doing the math, you still have to keep track of your expenses to make sure you’re sticking to your plan.

Keep track of your expenses and spending each month

You can easily keep track of your expenses and spending by using a spreadsheet or third-party app that allows you to categorize and organize your expenses and spending. If you go out and spend $200 on groceries and $10 on coffee, record that spending so you can readjust your budget next month if needed. 

This part is where your discipline comes into play and it’s super helpful to keep your financial goals in mind during your tracking. It can be hard to stay motivated and disciplined when trying to stick to your plan and not overspend.  So, congratulations, you made a budget for the month! Now, you  gotta do it all again before the next month to keep you on track! 

Set up the budget for next month ahead of time

The reason you track your expenses and spending even after you’ve created your budget is because you need to be able to see where you stand and make adjustments each and  every month. A good budget doesn’t stay the same month after month. Once you create your budget, you may realize after the first 30 days that you don’t need to set aside $100 for personal spending trips to target and you can cut that down to $50, so you adjust your budget accordingly. 

Now, the longer you do this it will become easier to create next month’s budget and not much may change from month to month. The important part is to stay consistent and confident with your budget. Don’t let debt get in the way of your financial freedom because even with debt, you can create a strategic plan to get rid of debt.

Let’s Recap 

Remember, a budget is not meant to be restrictive, but instead it  is a monthly plan that allows you to allocate your funds correctly. When creating your budget you need to keep in mind your expenses, especially the fixed ones, which stay the same month after month. In the realm of expenses, make sure to cover the four basics - transportation, home, utilities, and food.

A good budget should change month to month as you track your expenses and spending to figure out what you can lower or what you may need to set more money aside for. Debt does not prevent you from becoming financially free, as long as you follow these steps to create a budget and are able to stay consistent with it, it will be easier every time. Making a budget doesn’t have to be complex, it can be simple and straightforward, but discipline and consistency is what takes practice.

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