Creating a budget is the fundamental step in any well-guided personal finance journey. Your budget will directly influence how quickly and easily you can climb the ladder to financial wellness. By creating a budget, you're creating a spending plan in which you identify every dollar and determine what specific purpose it can or should serve. It ensures you will have enough money for the things you need and the things that are important to you, both now and in the future.

The trick to any good budget is to make sure that it is honest, accurate, and complete, and that it is aligned with your short- and long-term financial goals. The budgeting process begins by setting a financial goal for yourself. The goal could be short- or long-term, but it should be clearly defined. Next, you find a tool that will help keep you accountable for the remaining steps of the budgeting process. This could be an app or spreadsheet, but the key is to find a tool that you like and will use consistently.

Once you've set your goal and picked a budget tool, you are ready to move on to identifying your income and expenses. Many people review their income and spending on a monthly and annual basis, but you could review daily, weekly, quarterly, or even semesterly. Begin by identifying all sources of income which may include earned income from a job, financial aid, or family support. If you are employed, be sure to note the difference between the gross (pre-tax) and net pay (after-tax) on your pay stub. Then, record your spending by reviewing receipts as well as bank and credit card statements. Take note of which expenses are recurring and which are irregular and explore your spending habits to spot trends and separate your needs from wants.

After you've identified your income and expenses, subtract your expenses from your income. Review the result, and consider making adjustments as needed. If you have a surplus, that extra money could be saved or used to pay down bills. If you have a shortage, analyze your spending by listing out needs and wants and cut back as needed.

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As a college student, your budget might look different than others due to increased fixed and less frequent costs. However, when Budgeting for College Expenses like tuition, room and board, books, personal expenses, and transportation costs, you can follow the same budgeting process as described above with a few extra considerations.

Practice

Now that you know how to start with a budget, think about paying it forward and discuss starting your budget with a friend or a family member.

Want to learn more about Budgeting? Click here for the Budgeting Module in our MoneyCounts Series.

Congratulations! You can move on to Chapter 2. Create an Emergency Fund

To review the full module on Financial Literacy Overview (FLO), click here.

This was made possible in partnership with The Singleton Foundation for Financial Literacy and Entrepreneurship. This video and more videos like this can be found on Millionstories.com.