So many people think budgeting is big and scary, it isn’t! A well thought budget can make your life so much easier. When you make a budget it facilitates attaining of your financial goals, and your life will run that much more smoothly. Are you having trouble determining where to start with when creating a budget? We’ve got the easiest steps on how to make a budget for you to start with!
1. Make Note of Your Total Income
This is your total income after taxes, don’t forget to include the income of your partner as well. It should comprise everything, full-time and part-time second work, freelance income, Social Security and pension cheques, and any other income streams. An essential step in creating a budget is to determine the average monthly amount of income that you receive. An excellent way to do this, if your income is inconsistent is to average out the last 6 to 12 months of recurring revenue.
2. How Much Do You Have in Overall?
If you have savings, checking accounts, investment accounts, or any other financial means, you will want to keep track of how much money is in each account as well as the various interest rates and fees associated with each account. There may be ways to cut down on fees and interest rates connected to your accounts so make sure to do some research.
3. Create a List of Your Expenses
Think about your regular bills such as gas, mortgage, electricity, etc., don’t forget your irregular bills like quarterly insurance payments either. Keep your receipts, utility bills, and any other expense that arises during a one month period, and divide these bills into categories. You can make these categories as general or as specific as you like, whatever works best for you.
4. Use a Tool to Create A Budget
Once you plan your budget, you’ll still need to stay on top of your income and expenses. Software programs like Excel and various online budgeting tools are super handy and easily adjusted for long-term budgeting. Make sure to set aside time at least twice a week to review and update your budget.
5. The Bottom Line
Once you’ve entered all the pertinent information, you will discover the most important number in your entire budgeting process – the bottom line. The bottom line will tell you whether you are overspending or coming in under budget which is much more ideal. It is this step that will determine whether you are living within your means, or not.
6. Make the Appropriate Adjustments
The bottom line of your budget will give you a clear idea whether you are overspending your total monthly income or coming in on target. If you are overspending, you will now be faced with the difficult task of cutting back on your expenses. There are many ways you can cut your recurring monthly expenses to get within your budget and take steps to establish your financial boundaries for a solid personal financial plan.
7. Pay Yourself First
Last but not least, always pay yourself first. By moving money into savings first and treating it like any other household expense you slowly build up your stash without feeling strapped for cash. Paying yourself first makes things easier on a monthly basis because then you aren’t pulling from funds at the end of the month. It’s always a good idea to save for 3-6 months worth of household expenses just in case of emergencies.
In the end, the process of starting a budget can seem overwhelming, but once you get it organized it’s easy to maintain. Once you begin budgeting you can address your strengths and weaknesses regarding spending habits and excessive spending. A good budget will help you stay within your financial goals and increase your overall stability. Don’t be afraid of creating a budget; it’s one of the best steps you can take to manage your life. A good budget will ultimately help you build greater wealth and greatly help keep you out of financial trouble.