You need a budget to take control of your spending habits and work your way to financial freedom. Basically, good budgeting will help you to divide your income among needs, wants, savings, and debt repayment. Always remember that there are no great financial plans without an excellent budget. Paying off debts, saving for a vacation and other financial goals can be actualized with a good budget. The surest way is to find a way best suitable for you in managing and tracking your finances and stick to it. However, the following easy steps below can help you create a good budget for your finance. Amazing! Keep exploring through the article to understand better. Meanwhile, let’s look at the simple meaning of a personal budget to start with.
A personal or family budget is a summary that you can use to compare and track income and expenses for a defined period of time, usually a month. Many often associate budget with restricted spending, but really, the budget does not restrict spending. Perhaps, it’s only limits and helps prevent you from unnecessary expenditures that will cut off your income or even make you go broke. You save more and achieve other of your financial goals with a good personal budget.
However, a good budget will show you the amount you expect to bring in and compares it to any required expenses. Expenses such as paying off rent, insurance, vacation, dining out, etc. Instead of seeing budget as negative, it’s better to see it as a profitable tool in achieving your financial goals. That will also help show you your source of income, how much you have at hand, and where your money is going every month.
How to Make a Budget
Please take note that how to make a budget work is through honesty. You have to be sincere with both your income and expenses, that will be a good starting point. However, making a budget that will be effective includes your wiliness to work with the correct information of both your earnings and spending habits. Therefore, take advantage of these five easy but amazing steps to create a good budget for your finance today.
Step no1. Know your after tax income for the month
First and foremost, start with your monthly after-tax income. If the payoff is different, the average value can be used, but the higher the accuracy, the better. Don’t forget other sources of income, such as support payments, child support, interest, dividends, and rental income. Since you have identified your income, you can now see where it is going.
Step no2. Create a list of your expenses for the month
It’s of great help to keep a record and list your spending, so you can know where you need to make an adjustment. Especially, know the things you spend your money on most that are not that necessary, and learn how to make some cut back on them. Meanwhile, identify your fixed and variable expenses and concentrate more on your variable expenses because that is where you will need some cutback.
Note: Your fixed expenses are those compulsory expenditures every month. These include rent or mortgage, utilities or car payments, set-fee internet service, trash pickup, and regular childcare. Savings and debt repayment are also part of fixed expenses. On other hand, variable expenses are those expenses that vary or change from month to month such as groceries, gas, and entertainment, etc. Meanwhile, credit cards and bank statements are a good place to begin since they often categorize your expenses for the month.
Step no3. Calculate the difference
If your expenses exceed the amount you have saved, there are two options. Options are to make more money or spend less money. Generally, it is easier to reduce expenses than to make more money. Therefore, review your budget and make sure you can reduce it. If your savings exceed your expenditures, that’s perfect. Are you satisfied with the savings right now? If not, find what else to get rid of.
Step no4. Make a plan for your savings
If you have high-interest debt, it may be best to pay it off. However, you can even consolidate your debt at lower interest rates, so as to save more and pay your debt faster. A good goal is to save $1,000 in a savings account and set a savings goal that includes three months of emergency funds. For you to calculate your profit as a percentage, you have to start at 5% or 10% and increase your savings over time.
Step no5. Stick to your budget by making it a lifestyle
Take out time to review your budget every week or two as a means of sticking to it. Once or twice done will practically make it your habit. You need to have more savings than expenditures, and budget is what you need to start right away. Moreover, sticking to your budget and living by it will help you to quickly understand and track your spending. Nothing more is needed to change, if you’re sticking your budget to achieve your financial goals.
Template for Personal Budget
Search and download some free budget templates online which work with google spreadsheet. You can download some of these free templates from Vextex42 and start that budget journey today.
Circumstances may change, priorities may shift, you may change your job, have kids, or even move to another location. But, a good self-appointment with yourself every few months with your budget is very essential. Just create your desired budget and make sure it works for you to achieve both your current and future goals. Good luck!