Let's build your budget plan

How to create a budget plan and why you need one. 💸💰💸

Are you struggling to create a budget that will organize your expenses and build your savings?

No struggles here. I will teach you how to create a user-friendly budget that helps you month after month to understand how much money you can save vs splurge and what bills to pay.

A budget plan is a plan based on income and expenses. Budget plans are helpful to list all income and all necessary costs, then from the remaining decide what you can afford and what must go. It may seem like a lot, but as a financial coach, I can give you all the tips for success.

Here are my tips and input on creating a budget plan. Let us dive in!

Budget Method

A budget method is a strategy you want to follow when creating and sticking with your budget. I am a trendy coach so this budget will call for the most trending strategy, a monthly 50 30 20 plan. This budget method breaks down as 50 % of your income goes towards your necessary bills and obligations, your lifestyle, or “wants”, grips 30 % as checking or cash, and 20 % in savings and debt repayment.

Your budget method can change depending on your long and short-term goals. For instance, you may have a lifestyle that requires 60 % of obligations and expenses. Whereas my method guides my plan towards aggressively saving. I am to host a financial literacy event, so my budget method looks a lot like 50/10/40. Follow me on Instagram to get an update on my Coins and Coffee brunch event and how I planned.

Budget Plan

A budget plan should be a commitment you make towards your finances.

A budget plan is useful for many reasons. For example, a budget plan is useful for mapping your income and helps you create a plan for financial freedom. A budget plan can also help you track your savings for a major upcoming life event. Either way, everyone should have a budget plan no matter how little or large the income. Overall, this budget plan helps you create a visual guideline to focus on three main topics:

1.    Your monthly income

2.    Your monthly expenditure

3.    Your monthly savings

1. Income

To create a budget, we must organize income and expenses.

The first step of this plan is to strictly focus on forecasting your income for the month. This section captures details of your income to help you know how much money your budget is starting with to spend for the month. On your budget plan, include after-taxes income, from employment, self-employment, dividends (optional), gifts, etc.

Hear me out!

Let us review my client Sam’s budget plan.

Sam included all income for the month. Sam listed employment pay from a part-time position at the bakery, delivery driver side hustle income, and anything Sam is promised income for. A bad example to include is the lottery Sam hopes will be won. Just because I showed Sam how I won the Jackpot in Lake Charles at the casino does not mean it is income on a potential lottery win. Unless you have the winning numbers in hand, do not include them because it is a gamble. Once all income is listed, combine all the sources, and complete your first step.

Here’s how Sam’s budget plan is looking so far:

2. Expenses 

Now that the income is calculated, you can begin to build the rest of your plan. This section will focus on expenses, and the two categories of expenditure:

a. Necessity expenses – Items that can get reduced but cannot live without

b. Lifestyle expenses – luxury or lifestyle buys

I define the two expense categories so that once I build out my 50 30 20, I know how much and what I distribute expenses to.

Necessary expenses

In this section of the budget, you want to focus on necessary items. Items such as rent/ mortgage, utilities, food, health insurance, etc. These items absolutely cannot be lived without. I am writing out these expenses first because thinking back to my budget strategy I know these cost accounts for half, or 50 % of the income previously counted.

Lifestyle expenses

Lifestyle expenses are costs that are related to items that are outside of necessary expenses. I like to think these costs are usually an item you want instead of a need. These expenses can be lived without or reduced for a whole month cycle or longer. These expenses will have no impact on your overall well-being. I am writing out these expenses because my budget strategy states these costs should not account for more than 30% of the income previously counted.

Good examples are certain subscriptions, weekly mimosas at Sunday brunch, vacationing, and buying lifestyle items. I promise a new pair of 400$ sunshades can wait until your budget and savings allow those items to be purchased.

3. Savings/debt

Now your savings section. For some budgets, depending on the circumstance, you may need to allot some income to debt repayment and some for savings. For this example, we want to focus on savings. When your income is collected, I say to pay yourself first. Calculate 20 % and put it in a savings account or cash in an envelope. Whatever you choose, know that your savings are a cushion and a start to being financially fit.

4.   Strategy 50 30 20

Once all items are aligned, you can apply the rules of the strategy. From there determine if you are over on your strategy or have excess funds.

Let's check how Sam’s budget is going.

Takeaway: Overall, the goal of a budget plan is to map a financial decision for your monthly income. This way you can know where your money is going, and not guess where it went.

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