Building a Budget: Your First Step to Financial Freedom

One thing I have learned over the years, is that if I do not create a budget, then I will spend too much money. Building a budget is one of the most important things you can do to start saving money for your family. This will let you see exactly what is coming in and out every month. It will also let you see where you can reduce your spending and how you can start reducing your debt. Growing up my mom was a banker, and the importance of budgeting and personal finance were stressed to me from a young age. So I am here to share what I have learned so you can build a budget like a boss!

Building a budget to get yourself to financial freedom.

 

Building a Budget

So you want to buckle down and start your journey towards financial freedom. That is awesome and I applaud you for taking this first step. It will not be easy, and it will not be short, but I can promise that it will be worth it! I am here to walk you through building a budget from beginning to end. There is even a free pre-done budget spreadsheet here for you if you stay until the end!

Your Income

First thing is first. To build a successful budget you need to know your income each month. It is important that you use your net income and not your gross income. For those who do not know, gross income is how much you make BEFORE any taxes or deductions. Net income is what you actually bring home after everything is taken out. If your income varies each month, then you should estimate on the lower end just to be on the safe side. When I was a bartender, I would do this and it always worked out to my advantage.

Everything You Spend

Now you need to write down and tally up all of your bills. You need to add in ALL of your expenditures, even the ones that you don’t really think about. Of course, your major bills will be here, like rent/mortgage, electricity, car payments, ect… but you also want groceries, gas, any “extra” money for say buying clothes or your morning Starbucks. You want to be able to see EVERYTHING that you are spending money on and know exactly where that money is going.

Break It Down

Now that you have your earnings and your expenditures down, it is time to break it all down. When you see where all of your money is going, it makes it easier to make cuts in certain areas. If you need to, you can check out these easy ways to save money. If you see you are spending $5 every weekday on coffee, that is an easy fix. Start making your coffee at home and taking it with you. BOOM an extra $25 a week that you don’t need to be spending.

Surplus Funds

Hopefully after you deduct your expenditures from your earnings, you end up with some sort of surplus. What you do with this money is up to you, but there are a few things that I recommend you do to set you on a path to financial freedom.

Pay off Debt

This is my #1 recommendation, get your debt paid off! It might mean living on a tight budget for a while, but it will be worth it in the end. You should be paying more than the minimum payment on at least one credit card or debt payment. For me, I like to throw an extra $10 or more on a credit card every month so I can knock that debt out.

Start with your lowest balance first. Say you have one credit card where you owe $500 and another where you owe $1000. Put all your efforts into paying off the $500 card. Once that is gone, you have a little extra to pay off the larger card. It is simple and effective! Keep moving up from there. I try to pay a bit extra towards my car payment as well. Getting a large debt like a car paid off quickly will be a huge help in the long run. When paying off large debt, like your car or a home loan, be sure that your extra payment amount is going towards the principle. You can easily call your loan institution to ensure this.

This will probably mean removing eating out and other luxuries from your budget for the time being, but imagine how much extra money you will have once you are not paying those balances each month!

Save Some

This may go against what some people say, but it works for my family. While I use a majority of my surplus to pay off debt quicker, I also put some away in a savings account each month. This is great to have a safety net in case of an emergency. If you car breaks down, or you need a home repair you can pull from savings instead of using an emergency credit card. Don’t touch this money unless it is really an emergency though. Going out to eat, is not an emergency!

Stick To It

Will building a budget be easy? Probably not, but it will be worth it. In order for you to achieve financial freedom, you will probably have to struggle for a while. You won’t get all of the luxuries that you want, like vacations and going out to eat. I know it sucks, but I promise you will thank me later. Once you have debt paid off and you have a nice safety net in savings, then you can start to add the luxuries back into your budget. At that point, you will probably even be able to afford much nicer vacations and such because you aren’t paying off a car or credit cards anymore.

 

When it comes to building a budget, you just need to do it and stick to it. That is the best advice that I can give. Even when it gets hard, know it is worth it. Please, feel free to ask me any questions in the comments, I would love to try to help! Also, don’t forget to grab the free budgeting spreadsheet! All of the formulas are already there for you, so just plug in your numbers and get to saving! Feel free to add or remove any categories as well!

I also want to know, what is your best budgeting tip that you can offer to help achieve financial freedom?

35 comments

  1. Maheshwari Solapurkar says:

    I think what’s key here is “stick to it”. So many times, we come up with lists and promises to ourselves only to forget later. If we just stick to our plan by remembering our goals of financial freedom, then we’d be in a better place!

    • Jessi says:

      yes, sticking to it is the biggest, and hardest, part. i know so many times it’s ” oh we have some extra now, lets go out to eat” but really that should go towards some debt repayment or savings.

  2. Brenda | BrendaHaire.com says:

    My husband does all of our budget and finances. It’s so nice. Great tips above for those just learning these things. I am trying to teach my newlywed children these principles. The biggest thing for us was to coming up with a seven year plan. My husband would like to retire in seven years so we are working toward that! Having a mutual goal is key so that everyone stays on track.

  3. workoutwithdi says:

    We’re financially free. Paid off our mortgage no CC debt etc. Been that way for 2 years now and LOVE it. My top tip: know the difference between a WANT and a NEED. The two are not the same!

  4. Joanna @ Everyday Made Fresh says:

    While I was working full time outside the home, we didn’t budget at all. We had two full incomes, plus child support for my oldest daughter coming in. We just had the money in the account all the time. Now, this is year two without a full income, blogging brings in a little money but a fraction at what I was once getting paid. Now my oldest, whom I receive support for is about it be 18 in June, we will lose that support…we are fixing to create a budget, because I know they do work!

  5. karen says:

    Ugh. Budgeting can be a pain in the you-know-where. However, I am always trying to stick with it. Even when I majorly fail. Your tips and support are so helpful!

  6. Kristina says:

    These are great tips. I hear people all the time say they don’t budget. I always do so i know how much I can spend and also save.

  7. Jeanine says:

    Good tips! Budgeting is definitely import for those wanting financial freedom. Helps you to stay in line and not spend too much.

  8. KAtie Chiavarone says:

    This is so hard to do but so important! We go on and off often, and it’s definitely better when we stick to it.

  9. Amanda Love says:

    Knowing you income and where to put it is a great way to break down your finances and split some for your savings as you also pay off your debt. I made sure to pay off my debts and not make any more. It’s one step towards financial freedom.

  10. reesann723 says:

    Sticking to it is our biggest struggle. We tend to eat out a lot and that is something I would love to reign in more on our budget!

  11. Lyd says:

    This post is so handy for me. I have been wanting to start up a budget because I haven’t been able to save lately, so these tips were perfect.

  12. Kim says:

    My Husband and I need to find our financial freedom. You’ve inspired me to do something about it. These are practical tips.

    • Jessi says:

      I agree. That was the biggest thing for us. Yes, we had the extra money to go out to eat, but did we need to? No. That money can be used to pay extra towards a credit card or car payment.

  13. Dawn McAlexander says:

    These are some important tips, and very helpful. I know that here recently we have had to come to grips with things like going out to eat and spending on things we wanted but didn’t need. When you are on a tight budget, these things are very important to control.

  14. Krystle Cook says:

    Breaking down a budget and seeing where you are can be scary. We have had to do this recently to see where we are.

  15. Toni says:

    The hardest part about budgeting for me is keeping track of my spending. It’s easy to monitor my bills, but I always forget to note the cup of coffee and other quick purchases.

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