Budget: the very word can make some people cringe. Budgeting can be hard and can sometimes seem tedious, but it doesn’t have to be. Used properly, a budget can help you take control of your money and achieve your financial goals. Our easy-to-implement method can help you be more effective in budgeting.
Start with Your Income
The first step of any successful budget is knowing how much money you have to work with each month. Add up your take home pay from your jobs. Then, add any additional income you may have from a side business or investments. If your income varies from month to month, do your best to project for the month ahead. Once you know what your income is each month you will be ready to move on to the next step.
Calculate Your Fixed Expenses
The second step is to add up all your fixed monthly expenses. These are likely your basic needs like housing, transportation, food, utilities, and student loans. If you have debts, they would also fall into this category. Add up your expenses and determine what percentage of your income they account for.
Plan for Future Goals
Once you know where you stand regarding income versus expenses you can begin to plan for future goals. Are you saving for retirement? Is there a dream vacation you want to save up for? Would you like to buy a house in the future and need to save up for a down payment? These are all priorities to consider in this next step of budgeting. Prioritize your goals and then make a plan for how you are going to achieve them.
Add in Discretionary Expenses
Next is the fun part. Once you have covered your basics and know that your future goals are being addressed you can begin to add in entertainment and hobbies. Whether you have a high end gym membership, enjoy painting pottery, or heading out for a night of dancing, you should allocate a line item in your budget to cover your discretionary expenses.
Calculate Expenses vs. Income
Once you have all your fixed expenses, future goal savings, and discretionary expenses broken out, total them all up. Then subtract this number from your income. If you end up with a positive number, then you make more than you spend. If you end up with a negative number then you are spending more than you make and will need to make adjustments to the budget.
Tweak Your Spending
Now that you know where you stand, you can adjust your budget categories as necessary. If you are overspending, you may need to temporarily cut out some discretionary expenses until you get back on your feet. Your budget is a living, breathing tool to help you maintain control of your money. It should evolve and change over time as your needs and priorities change.
Make Your Budget Work for You
A budget is an essential tool in reaching your financial goals. While it may not seem glamorous, it doesn’t have to be a burden. Take the time to make a budget, and take control of your finances once and for all.
