Everyone wants to have more power over their money and be at the mercy of strict finances less. What many people don’t realize is that the key to financial freedom is a strong budget.
Budgeting gets a bad rap sometimes as being too time-consuming, or by restricting your finances too much. But all you need is these 4 steps to make a budget, and once that’s done, you’ll find yourself getting out of debt, saving more, and becoming more financially free and comfortable in the long term.
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Dave Ramsey has an article named, “Learn How to Budget” on his blog where he briefly outlines his simple 4 step process to creating a blog. So stop living in the monetary moment, and start living for the financial long term—it really is worth the 5 minutes it’ll take you to go through these 4 steps and create your own simple budget.
Step 1: List Total Income
Dave Ramsey’s first step to creating a budget is, “Write Down Your Total Income.”
The very first step to creating any budget is to list all your sources of income and add them together to have a total income amount at the top of your budget. Dave Ramsey recommends that you use what he calls “take-home pay” when adding up your total income. Take-home pay refers to net income rather than gross income.
Net Income: Net income refers to your total income after taxes. It is sometimes called “take-home pay” because this is the amount that actually reaches your bank account after taxes get taken out.
Gross Income: Gross income refers to your total income before taxes.
You can find out your take-home pay by finding the percentage of income tax for your state and subtracting that percentage from your monthly income.
Make sure you include all sources of income, including any second jobs, any freelancing, or side gigs.
Step 2: List Total Expenses
Dave Ramsey’s second step to creating a budget is to, “List Your Expenses.”
List all of the regular expenses you have every month. This includes anything and everything you’re your mortgage, utilities, rent, insurance, HOA fees, groceries, gas, subscriptions, clothing, debts, phone bills, etc.
One of the best ways to determine what all your regular expenses end up being is to look at your bank statement for the past month or couple of months and find the average amount you spend each month on everything.
Step 3: Plan Your Spending
Dave Ramsey’s third step to creating a budget is to, “Subtract Expenses from Income to Equal Zero.”
The type of budget that Dave Ramsey suggests you make is called a zero-based budget. This is when your income minus your expenses equal zero. So every single dollar you make goes to some kind of category listed in your budget, not a single cent is unaccounted for. This is a good budget type because every single dollar you make has a purpose.
You do the most math in step 2 of Dave Ramsey’s budget plan. Divide up your monthly income into all your different expense categories until you reach zero. If at the end of your budgeting calculations, you are above zero then you have funds that could still be going somewhere, like to the emergency fund. If you are below zero you have to reduce expenses somewhere so you don’t end up losing money each month.
Step 4: Keep a Record
Dave Ramsey’s fourth step to creating a budget is to, “Track Your Spending.”
Now you just have to keep track of all your transactions to make sure you stay in the budget guidelines you created for yourself in steps 2 and 3. Figure out the best way for you to keep track of all of your transactions so that you can make sure you don’t go over in any of your budgeting categories.
There are a few ways you can keep track of your spending. You can use any number of budgeting apps, a detailed checkbook, another form of paper note-taking, the cash envelope system, the cash wallet system, or prepaid debit cards.
Dave Ramsey suggest you use the EveryDollar app as your budgeting app.
Using checks can make budgeting a lot easier. Every time you write a check a copy of the check gets written on the slip behind each individual check. By keeping these personal check receipts you can keep perfect track of all your transactions. You can also use the section in the back of your checkbook to jot down the details of all your spending.
If you don’t want to use checks, you can still use a paper recording system to keep track of all your spending. You can find notebooks that are ready for this purpose on Amazon by searching budget workbook or expense tracker notebook.
Cash Envelope System
A cash envelope system is when you divide your cash up into different envelopes that are then assigned specific purposes. For example, you could have an envelope for bills, another for groceries, and another for gas. This way, you can only use those strict cash amounts to make purchases. A cash envelope system is a great option for those who have a lot of difficulties staying on budget and not overspending.
You can even purchase envelope systems on Amazon as well by searching cash envelope system where you’ll find envelopes and filing systems you can use to keep your cash organized.
Cash Wallet System
Another way to use the cash envelope system is to use a wallet with enough cash dividers for all your budgeting sections. These cash system wallets are helpful because you can keep all your cash organization neatly zipped up in one wallet. You can also use your wallet for your cards and checkbook as well.
Free Budgeting Worksheets
Tracking your spending in a way that works well for you might be the most taxing part of budgeting. But with these tips, you can make recording expenses a breeze.
Some other things you can use to make budgeting even easier is one of Dave Ramsey’s budget forms. Any of these budget forms from Dave Ramsey’s website are free to use and can help you budget and plan.
Specifically his Monthly Cash Flow Plan can help you go through the steps and organize your funds according to Dave Ramsey’s easy money flow plan.
If you need a more simplified version of this budget form you can find it with Dave Ramsey’s Quick Start Budget.
Budgeting doesn’t have to be a colossal pain, and it doesn’t have to make your life sad and restricted. In fact, using a budget can be your key to long-term financial freedom.
Are you a college student in need of some budgeting help? Check out this article, “Budgeting for College Students 101.”
Read another article all about how to make budgeting easy, “Budgeting in 4 Easy Steps.”