3 Simple Steps for Creating a Budget

 

What’s your favorite day of the month? Most people will agree, it’s payday. For some consumers though, paycheck to paycheck is a way of life (albeit not a very financially smart way of life.) “Where did all my money go??” If you ask yourself this question on a consistent basis, then it’s time to create a budget and find out exactly why your finances are so depleted. Read along and follow these steps to help get a better understanding of your spending habits.

Step 1: Calculate

 

First, let’s get a rough overview of your budget. Open up an excel doc or grab a pen and paper because we’re going to determine just how much you’re taking in vs how much you’re spending.

Calculate all sources of income. Make sure to include part-time work and side jobs you have or any real estate income you may collect. If you have a spouse or significant other you are living with, it will be easier to combine income and make a shared budget.

After you calculate your total income for the month, start listing all of the expenses you have. This includes EVERYTHING you are currently paying for monthly. When making your list, start with your necessities and work your way down. Top of the list should include:

  • Mortgage/Rent
  • Groceries
  • Household Bills
  • Autoloans
  • Insurance
  • Taxes
  • tender help
  • Gas
  • Cell Phone Bills
  • Loans

Now subtract your expenses from your income. If you get a negative number, then start looking to get rid of some expenses or take up a part-time job to help pay for them. Ask yourself if you really need the expense when looking to penny pinch. Is that magazine subscription or Netflix account really doing you justice? Or is it just another account adding to your growing expense list? Leave yourself a little bit of “entertainment money,” but use it sparingly. A budget with absolutely no fun is a budget that is doomed to fail.

Step 2: Track

 

Now that your budget is planned out, it’s time to track it. Mark down every bill you pay and purchase you make. Do this step for 1 month to get a general view of where everything is going. Based upon your spending habits, make changes to where you see fit. For example: if you see that ordering out for lunch is becoming too costly, you may want to start bringing a bagged lunch to work.

You can use an excel spreadsheet to keep track of your expenses or use a free program such as mint.com. Using an app like mint can make budget planning easy. Most budget apps will connect to your banking account and automatically categorize your spending. Now you can physically see where everything is going and adjust your budget to fit your needs. If you don’t have a bank yet, try finding a brand in the Business Savings Account industry.

Step 3: Agree on a Budget and Stick to It

 

You’ve planned, you’ve tracked, now it’s time to maintain! Take that planned budget from step one and the results from step 2 and make adjustments. Add any category you may have forgotten and start setting financial goals. If you have a joint budget with a spouse or significant other, make sure you’re both on the same page.

Make sure you’re also giving your savings account the love it deserves too. When it comes to saving, most financial advisers will tell you to put away 10% of your paycheck. The best way to do this is have it automatically come out on payday, and then go to a check cashing store near you to encash the rest of your check. Money that goes unseen will not be missed. Set up an automatic savings deposit and then leave the account alone so it can grow and flourish.

Just like savings, the same can be said for that family vacation or big purchases you’re planning to make in the future. Everyone needs time to get away and relax. When planning for a vacation, set up a separate account to which money will automatically get deposited into every paycheck. Map out how long it will take before accumulating your goal amount and adjust that into your monthly budget. If your dream vacation is looking to be too costly, then start looking at cheaper options. Maybe you should only go away for 5 days instead of 7? Or maybe you could get just as much enjoyment driving to a closer vaca spot rather than traveling across the country. Use this same method when looking to make a big purchase such as a new appliance.

 

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