Budgeting isn’t guesswork.
To create a working budget, you need to figure out how much money you have, and then decide what to spend it on. Your plan should be based on the reality of your known expenses—not what-ifs or maybes.
First identify your obligations. These are the things you have to spend money on, like your rent, mortgage, or car payments. Identify which of these expenses are set in stone, and which are more flexible. Don’t overlook big expenses that are irregular, such as medical costs or home repairs.
After you decide what to spend and what to save, make sure to track your actual spending. One of the benefits of having a budget is being able to see exactly how much you spend on different things. Sometimes you can adjust your spending. But other times you’ll have to adjust the budget itself, so be honest with yourself.
For a step-by-step process on crafting a practical plan, check out our Instaread on You Need a Budget.