Most people need some way of seeing where their money is going each month. A budget can help you feel more in control of your finances and make it easier to save money for your goals.
The trick is to figure out a way to track your finances that works for you. The following steps can help you create a budget.
Step 1: Calculate your net income
The foundation of an effective budget is your net income. That’s your take-home pay—total wages or salary minus deductions for taxes and employer-provided programs such as retirement plans and health insurance.
Step 2: Track your spending
Once you know how much money you have coming in, the next step is to figure out where it’s going.
Tracking and categorizing your expenses can help you determine what you are spending the most money on and where it might be easiest to save.
Step 3: Set realistic goals
Before you start sifting through the information you’ve tracked, make a list of your short- and long-term financial goals.
Short-term goals should take around one to three years to achieve and might include things like setting up an emergency fund or paying down credit card debt.
Step 4: Make a plan
This is where everything comes together: What you’re actually spending vs. what you want to spend.
Use the variable and fixed expenses you compiled to get a sense of what you’ll spend in the coming months.
Step 5: Adjust your spending to stay on budget
Look toward your “wants” as the first area for cuts. Can you skip movie night in favor of a movie at home? If you’ve already adjusted your spending on wants, take a closer look at your spending on monthly payments.
Remember, even small savings can add up to a lot of money. You might be surprised at how much extra money you accumulate by making one minor adjustment at a time.
Step 6: Review your budget regularly
You may get a raise, your expenses may change or you may reach a goal and want to plan for a new one.
Whatever the reason, get into the habit of regularly checking in with your budget following the steps above.
Key Points- Budget Is So Important
Budgeting is how you make any money goals happen it’s how you make progress with your finances! It puts you in control. It gives you permission to spend your money your way.
I could go on and on and on because I honestly believe making a budget and living that budgeting life is one of the most important decisions you’ll make with your finances.