Although setting up a budget can seem intimidating, the process can be quite easy. The tricky part is sticking to it. Follow these steps to get your budget up and running.
Figure Out Your Monthly Income
Before you do anything else, you need to know how much money you have to work with each month. This way you can determine what you can afford to spend.
Calculate Your Fixed Monthly Bills
Your fixed expenses are bills that do not fluctuate from month to month. These payments typically include car insurance, student loans, certain utilities, and rent. Saving should be included in this category as well. It is recommended that 10% of your monthly income is deposited into a savings account.
Once your budget is in place, you can begin to shop around for cheaper payment plans.
Calculate Your Variable Monthly Expenses
Variable expenses are a bit trickier. These are expenses that are predictable, but change every time they are paid. These usually include clothing, entertainment, and groceries. These costs can typically be cut back on each month if necessary. Review your previous transactions and determine a price range for each of these expenses for you budget.
Be sure to account for seasonal spending as well. Months with birthdays are holidays such as December tend to require more money for gifts. You can save for seasonal expenses by setting aside extra money during the months that require less spending.
Compare Your Income and Your Expenses
In a perfect scenario, you’ll be drafting a zero-dollar budget. This is when every dollar from your income is assigned a specific place, resulting in your expenses perfectly matching your monthly income. If you costs don’t match your income, then you’ll need to make some changes. Perhaps you can scale back on some of your variable costs. If you find yourself with extra money, you should put it into your savings account.
If you cut back on your variable expenses, and are still unable to meet your fixed expenses, you will need to find other options for paying your fixed expenses. If you are unable to arrange cheaper payment plans, you may need to look for a better paying job, or an additional job.
Keep Track of all Your Expenses
After your budget has been established, you’ll need to keep a record of any financial transaction you make. This process can be made easier by utilizing budgeting software or applications such as mint or acorns. Using such services should allow you to have a rough idea how much money you have allotted for each expense category at any given time.
Taking time to track your expenses on a daily basis will is a much more efficient process than trying to do it all at the end of the month. Plus, it will help prevent yourself from overspending. You don’t want to find out at the end of your month that you’re over on your budget.
Make Adjustments as Needed
When you first set your budget up, you’ll probably need to make some adjustments to it to find your sweet spot. For example, if your car breaks down, and you need funds to repair it, you can use money that would have otherwise went to entertainment.
Moving your money around is fine, as long as it fits within the budget you have set for yourself. This will help you handle unexpected expenses, and help prevent you from overspending.
Review Your Budget
After you’ve used your budget for a period of time, consider tweaking spending in certain categories to see what works best for you. Perhaps you could be putting more into your savings than you initially thought. Consider expenses in the upcoming months as well. Ideally, your budget will be reviewed and tweaked at the end of each month.
Hints for Staying on Track
If you’re working on commission, or if your income varies, you’ll need to develop a slightly different budgeting plan. You’ll want to put a heavy focus on saving so you’ll be able to cover expenses if your income is slow one month
Starting a budget can be a bit discouraging. But stick with it, and take solace in the fact that you’re making an effort to budget. Deciding you need to budget your money is a great first step in establishing financial wellness.
Utilizing the 50/20/30 rule can help keep your needs, savings, and wants in check.
Source: https://www.thebalance.com/how-to-set-up-a-budget-2385690
