Welcome to Rewire’s 4-part series about budgeting for migrants. Managing finances in two countries simultaneously is tough, but by creating and sticking to a budget plan, you’ll have an easier time saving your money. In this series, you’ll learn what goes into a budget, how to create your own budget, and some tips to help you along the way.
How to Make a Budget in 7 Steps
Making a budget doesn’t have to be complicated. There is a way to create a budget that will help you ensure it’s realistic enough for you to stick to. Whether you want to use a digital budgeting spreadsheet or write it down the old-fashioned way with pen and paper doesn’t matter, the important thing is that you take the time to go through each step.
Step 1: Gather Your Receipts and Statements
The first thing you need to do before you begin anything else is gathering all the paperwork you might need to reference while making this budget. This could be paystubs, bills, receipts for anything you purchase, bank or international money-transfer statements, loan paperwork, or anything else. If you’ve just moved to a new country, then you might want to wait a couple of months to settle in before you create a budget since you’ll have accurate information to base your estimations on.
Step 2: Determine Your Net Income
Next, you need to determine how much money you have coming in. If you have a pay stub from work, then calculating this should be pretty straightforward. However, if you have multiple jobs or sources of income, then make sure you’re adding up all the right amounts to get to your total income. Take into account any deductions that come off your paycheck or income, such as taxes or any form of healthcare.
Step 3: Make a List of Expenses
Make a list of the expenses that you have each month, in other words, your non-discretionary expenses. This could be rent, transportation costs, utilities, food, childcare, insurance, as well as any other expenses back in your home country that you need to take care of each month. After that, look at your receipts, bills, or credit card statements from the last few months and look at your spending habits on discretionary items, like eating out at restaurants, entertainment, or travel.
Step 4: Categorize Your Expenses
In part one of this budgeting series, we talked about discretionary and non-discretionary. Now, it’s time to start dividing your spending into these two categories. After you’ve divided all of your expenses into either one of the two categories, assign a cost to each expense based on what you’ve spent on them over the last few months.
Step 5: Calculate Your Budget
Now that all your expenses have a more-or-less accurate projected cost, add up all your expenses in both the discretionary and non-discretionary categories. This is the total amount of your monthly spending. Next, take the amount you got in step one for your total income and deduct your total monthly spending. If the number you end up with is positive, then you’re off to a good start as it means your income is higher than your expenses. If the number you get is negative, it means you’re spending more than what you’re making.
Step 6: Figure Out Your Savings
Once you’ve determined how much money you have leftover after deducting all your expenses, that’s the money you can use for savings or for sending home to loved ones. Decide how much you’d like to save each month, and eventually, if this number stays the same each month, you can begin to calculate it as a recurring expense as well.
Step 7: Monitor Your Budget and Make Changes
Every month or two, go back to your budget and see if anything has changed. Perhaps you’ve taken a second job, you’re earning more, or you’ve moved to a cheaper apartment. Spending a few minutes each month to check your budget and make changes will help you save money.
Setting aside the time to create a budget is essential to your financial wellbeing and will give you the peace of mind of knowing how much you’re spending and saving every month. In the next and final part of this series, we’ll give you some tips to create good budgeting habits that will help you manage the amount of money you’re spending and how much you’re sending home each month.