Businesses, organizations and event planning tend to stick within a set budget that’s agreed upon by those involved. But having a consistent budget isn’t just for large parties. Creating and sticking to a budget is important for all people, regardless of income level.
Without a budget, your attitude toward your monthly income can become passive. You know you have money coming in, but without tracking your spending, you might not know where that money is going. By creating a sticking to a budget, you can track how you spend your money.
A budget also helps you to spend your money more wisely on setting limits on categories like entertainment, vacations and eating out. If you tend to save money and are afraid of spending, establishing a budget will give you the freedom to spend money on yourself once in a while without the guilt of spending money that you shouldn’t be spending.
Creating a budget may take more than five minutes if you really want to get an in-depth look and plan into how you should spend your money. This budget you create can range from a simple percentage-based outline or go into details and dollar amounts for each category you choose to spend your money on.
While budgets involve details and discipline, creating and sticking to a trustworthy budget doesn’t have to be intimidating. With the right tips and tools, you can create a budget that works well for you and your family and bring you closer to financial stability.
There are numerous resources you can use to create a budget, but only you know what will work best for you. There is no one-size-fits-all approach to establishing a budget that will bring you to financial freedom.
Regardless of your income level, how much you spend or what your various expenses are, a budget is an essential and helpful tool to help you understand your finances to make the right decisions. Here, we share the 3 major steps along with the practical tips and secrets to help you establish your own budget for you and your family.
Step 1: Get Your Money Right
Before you can look at how you can divide up your money, you have to figure out how much money you have coming in and going out on expenses. If you get a regular paycheck every pay period, often times that amount is your actual income. However, if you have other deductions that are taken out of your paycheck, such as for insurance, a 401K plan or other deductions, you’ll want to know what’s taken out of your paycheck even before that money gets to your account.
Figure Our Your Actual Income
If you have several accounts, such as checking or savings accounts, you’ll want to account for all sources of income. If you have other part time jobs, be sure to incorporate that income into your overall plan. In order to get a truly accurate picture of how you spend your money, it’s important to account for all sources of income that you have coming in each month.
If your income is not consistent and rather rises and falls, an article from MoneyCrashers suggests to average out your previous income per month from the last 6 to 12 months. This number will give you a better picture of what income you can expect over time so you have a number to plan with.
Track Your Liabilities & Know How Much You Owe
If you’re working to get out of debt or still have student loans or house or car payments you’re responsible for, you’ll want to know that amount when creating your budget. A budget can help you keep track of help to pay off that debt that’s hanging over your head.
Knowing how much you have yet pay off allows you to factor this into your budget lines and get on your way to financial stability.
Create a List of Your Fixed and Variable Monthly Expenses
When tracking your expenses, you can separate those expenses into two basic categories: fixed and variable. Your fixed monthly expenses are those that are the same each month. These fixed expenses include things like your rent, your car payment and utilities. These bills and expenses can either be on a monthly or quarterly basis and can be easily incorporated. You can also incorporate your various savings amounts – whether for retirement or college education. While it’s not exactly an expense like your mortgage, it is a relocation of your money toward a particular category.
Variable expenses, on the other hand, are not always as easy to track. These variable expenses aren’t necessarily the exact same month to month. This category includes things like groceries, gas for your vehicle and entertainment. While these expenses are a little more challenging to set ahead of time for your budget, it’s common that you have a general idea of how much you spend on each category each month. This category of expenses will require a little more wiggle room as you set how much you’re able to spend in each of these variable categories.
Total Your Monthly Income and Monthly Expenses
Once you’ve gathered all your sources of income and all your sources of expenses, it’s time to total them up. Typically, your income should equal your expenses. If that’s not the case, you’ll need to do some adjustments to your expenses, or take another look at how much money you have coming in each month.
Step 2: Follow Your Budget With the 50-30-20 rule
Your initial good intentions about setting up a budget are a great start, but the real dedication comes in following through on following that budget you set up.
While there’s no one set guideline for measuring your budget, as everyone’s situation and circumstances are different, there are some helpful strategies that can help you get your finances on track.
Spend 50% on Necessities
In this guideline, the 50 suggests to spend 50% of your after-tax income on necessities. And before you put it in your budget, remember that things like going out for pizza and a movie every other day is not a necessity.
This largest category of your budget should include things like paying for your living quarters, so and utilities. Other things you’ll need to spend on include groceries, transportation expenses and insurance costs. Measure out this portion of your budget first so that you are sure you’ll have enough to cover these essential categories.
If your essential expenses exceed that 50% mark of your income, you may need to dip down into that 30% category of the 50-30-20 rule. You’ll want to preserve that 20% category. You can also review your expenses and rethink some of your “essential” expenses.
Put At Least 20% on Savings
In the helpful guideline of 50-30-20, the 20% is a minimum suggestion for spending on savings and loan repayments. This is a category you do not want to ignore in creating your monthly budget as it can help you prepare for your future and be a comfortable safety net in times of need. You can use this category when building up an emergency fund, which accounts for at least three months of your essential expenses.
Feeding a percentage of your income into this category allows you the assurance that you’re planning well for retirement and can have that money when you need it later on. Getting rid of debt is also an important step in becoming financially responsible with the help of a budget. You can plan out each month how much you’ll commit to paying off that student loan or car payment.
This category can also factor in different investments, 401Ks, and really building up that emergency fund.
Spend No More Than 30% on Wants
From what’s leftover after your essential expenses and savings, NerdWallet suggests you can use up to 30% of your income on your wants. This category allows you some freedom to have fun with your earnings and spend it on blessing others as well. Incorporating this into your budget frees you from guilt from spending money on yourself. When you plan for it, spending on non-essentials is okay because you know you’ll still have enough afterward.
Step 3: Stay On Track With Your Budget
Be Dedicated, But Not Too Stingy
A monthly budget is rarely perfect each month. With holidays and fluctuating gas prices, you can’t predict your actual costs for everything. While you do want to be committed to sticking with your budget to the best of your abilities, you also want to give yourself a little bit of grace. If you go over your budgeted about on entertainment one month, don’t beat yourself up about it. Instead, don’t spend as much in the next month to make up for it. Your budget should be designed to handle fluctuating costs and provide you enough wiggle room so that you can still be confident your needs are taken care of each month.
Use Spreadsheets & Free Apps to Track & Maintain Your Budget
One of the easiest ways to create and track your budget is on a spreadsheet. You can create automatic rules and functions that do all the calculations for you. This automatic process makes it easier for you to stay on track without having to do a lot of the legwork yourself.
In addition to spreadsheets, there are also several websites and apps that can help you create and stay up on your budget. Tools like EveryDollar or Mint.com are easy to use and make tracking your income and expenses easy, and sometimes even fun. Some apps and sites can even be connected directly to your bank account or credit card so your expenses can be tracked automatically.
Stay Accountable To Your Budget
Sticking to a budget, especially if it seems restricting and new, is not always an easy thing. Rather than suffering through your limitations, find someone you know and trust to keep yourself accountable in committing to your budget. If you are tempted with a buying opportunity you know you shouldn’t take, talk to your friend or mentor about it. Find someone who is in a similar situation or has found success in sticking to a budget to provide encouragement and support as you follow a budget.
Review Your Budget Quarterly
Don’t go too many months without really reviewing and taking a close look at the accuracy of your budget. If you find yourself frequently going over your allotted amount in a particular category, you may want to rethink your purchasing decisions or perhaps transfer some money from a different category. Keeping track of the accuracy of your budget will help you make the right decisions when it comes to spending your hard earned money.
Be Confident in Your Goals
In order to successfully stick to a budget, it’s helpful to see a budget as opportunities rather than a list that feels constricting. A budget provides you a quick overview of what money you have coming in and where that money is going. This practice is an essential step in becoming financially stable and confident that you know how to manage your money.
If you’re struggling with handling your finances or find yourself in debilitating debt, a budget provides you the freedom and clarity in using your money wisely so that you can get out of debt and not have to worry about money and having enough each month for your essentials. If you see a budget as a tool of freedom, rather than a restricting rule, you have a greater chance of sticking with it each month.
There are a lot of ways to grow in your financial understanding. Creating and sticking to a budget is a great way to keep track of all your income and all your expenses in an organized and predictable format.
Utilize these helpful tips and secrets and get started on tracking your finances. Discover the freedom that’s found in depending on a budget that can get you to where you want to be.