How to Create a Basic Budget

Creating a budget is one of the most important steps in keeping your finances in order. When you move into your first apartment, you’ll have to pay for necessities, such as rent, utilities, and groceries, while also being able to afford many other monthly bills, including commuting or car payments, student loan payments, phone, cable and internet. The best way to help you keep track of what bills are due and when, and how much money you’ll need to pay these bills, is to create a basic budget.

A basic budget will include these 5 items:

1: Your monthly income. This is the take-home/after-tax money you will bring in each month. If your monthly income fluctuates, list a lower-than-average amount.

2: List your monthly mandatory expenses. These expenses cost the same or vary just a little from month-to-month. These expenses include but are not limited to the following:

Rent
Insurance
Electric, gas, water, sewer
Transportation (Car payment and insurance, public transportation pass, etc.)
Health Insurance
Loan/debt payments (student, credit card, etc.)
Groceries
Laundry/dry cleaning

3: List you monthly discretionary expenses. This includes but is not limited to the following:

Cable
Internet
Entertainment
Dining out
Shopping
Gym membership
Hobbies

4: Add up your monthly expenses and subtract from your monthly income. If you’re left with a negative number, you need to see where you can adjust your spending or lower or cut bills.

5: Pay yourself. After you calculate your monthly income and monthly expenses, figure out a way to pay yourself by contributing to a savings account and/or a retirement account. Even if you only contribute $10 or $20 each month, always pay yourself.

Tips:

Your monthly rent should be no more than a third of your take-home pay. If you’re spending more than a third, consider moving into a less expensive apartment or getting a roommate.
Your monthly grocery expenses should be no more than $300 per person. Buying store-brand items, buying in bulk, or shopping at discount grocery store may help you lower you cost.