Creating a budget can be a really important first step when moving out on your own. When you graduate from high school and/or college, most people can’t wait to get out on their own and start living their own life.

However, what most people fail to realize, until it is too late, is if you’re not careful you’ll spend all your money too fast and won’t have enough left to make it to your next paycheck. A friend of mine used to call that problem – “Too much month at the end of the money.”

Many times when you live at home with your parents you won’t have a lot of expenses that you’ll have to pay when you’re on your own. For instance, you probably won’t be paying things like rent, utilities, internet, cable, etc. Some of those are obvious, others, not so much – like insurance, or realizing that your water bill is not included with your electric bill.

People get accustomed to spending a certain way in their youth and are used to much more disposable income. When living on your own, things tend to reverse. You have less disposable income since you now have more bills to pay.

So how do you keep more money in your pocket? All you have to do is learn how and where you money is going, so you can control it, instead of your money controlling you. The easiest way is to create a budget.

Now a lot of people think that a budget is something that restricts you – limiting what you can spend. I like to think of it as a tool to help you. A budget is something that lets you define what you want to spend your money on, to make sure there is money to spend on it, rather than other things that distract us.

Budgets help you track where your money goes, how much you have left and if there is a place you can cut your spending to save money.

The first step to creating a budget is to create a spreadsheet. Everyone’s lifestyle is different, so not all things will apply to everyone. Make your spreadsheet match your lifestyle. 

Break your Spending into Sections

I recommend breaking your spreadsheet down into two to three sections.

The first section should be your needs section. This includes things like rent/mortgage, car payments, gas for your car, utilities (water and electricity), food, phone, internet, tuition and insurance. Depending upon where you are in life, some of these may or may not be needed.

Your second section should be your wants (things that you want, but don’t necessarily have to have). These would include things like dining out, cable/streaming services, travel/vacations, entertainment (movies, amusement parks, concerts, conventions that aren’t business related), hobbies and replacement of items (clothes, shoes, new car, house renovations,etc.).

The third section does not apply to everyone – work/business expenses. Some people don’t have any extra work expenses, however some people have extra work expenses that are not covered by their employer or they are self employed. These could include things like special clothes required, office supplies if you work hours at home, tools, etc. If you are self employed then everything you need to run your business would fall under this category including things like insurance, inventory, licenses, advertising and travel for the business.

By separating these items into sections you pay off your needs first and then once those bills have been paid, then move on to the wants section. This also allows you to see just how much you are spending on items.

Those Starbucks coffees that you love really add up! Most people don’t realize just how much they spend on many things that they purchase, thinking it’s just $2-5. However, when you add them all up, you see just how much you are spending. A budget lets you see a month view and from there you can determine if that’s what you want to spend your money on. If it is, great, spend you money on Starbucks. Just don’t do it, at the expense of a need – like your rent.

Now you can see things you can cut or reduce spending on to keep more money in your pocket.

In the column next to each item, put what you anticipate spending on this category each month. Some of these are fixed costs, others will variable costs. The variable costs items you might want to look at a few months so you can determine an average.

For example, your car payment or rent will be the same price each month. We’ll say you pay $300 for your car payment each month, so you would put $300 in the second column. Now things like utilities can vary. Many times your utility bill will show a graph on it for what you have paid for the past six months to a year. You can use this to determine your average payment. Just enter the average in the second column.

Some things you’ll just have to guess on like your groceries. Later down the line you’ll have a better idea of what this costs you and you can change the amount in column two to match what you typically spend.

When we set up our first budget, we were surprised by how much we spent in some areas. After our first month we started adjusting ourselves and our spending habits. We’ve been doing this for about twenty years and its become automatic for us, but we still periodically review to make sure we’re keeping on track.

Then create columns for each month. You’ll want a new budget for each year. As you spend your money each month, be sure to enter it under that month’s column for each category. If you don’t spend any money on that category that month, just leave it blank.

Once you complete that first year’s budget, you can use that budget to determine the next year’s budget. Just take your averages in each row and use them to set up column two for each category. Sometimes we find that we need to add some to one of our expenses, like gas which went up in price, so we take out of something some where else, or we use that new raise to help us cover the cost.

Sticking to your budget isn’t always easy, but with hard work and determination it can help your get your finances in order and allow you to control where your money goes.

If setting up a spreadsheet seems too difficult or just something you know you won’t stick to, you can always use the envelope method. To learn about the envelope method, check out “Creating a Budget Part II” and I’ll walk you through it.