How to Better Budgeting in 4 Easy Steps
“Where my money go!?” says the narrator. If you find yourself asking that question at the end of each month or in the days leading up to your next paycheck, it’s time to reorganize your finances.
What if you don’t have a budget for a financial consultant? No problem! It’s very simple to get started. Your finances should be easier to handle after you’ve gotten the hang of it, and you’ll have a higher chance of meeting your short- and long-term objectives.
Let’s follow the steps bellow:
Step 1: Make a list of your objectives.
What are your hopes and dreams for the coming months? What about the coming years? Are you considering furthering your education, purchasing a new automobile, or purchasing your first home? Make a list of your most critical plans, as well as a realistic estimate of how long it will take you to get there. Keep this list handy; we’ll come back to it later.
Step 2: Determine Your Earnings and Expenses
Your monthly income in a budget is the amount you take home in each paycheck (not your total annual salary), as well as any other regular payments you receive, such as freelance revenue, investment dividends, interest, and child support. That’s how much you’ll have to spend. Add up all of your usual monthly expenses next. Housing, utilities, daycare, phone and Internet service, food, student loans, insurance, transportation or commuting costs, and any other regular bills should all be included. The discretionary expenses, or those that are optional or flexible, are the next step. Entertainment, dining out, vacations, hobbies, and other extracurricular activities are examples of discretionary spending.
Remember to budget for costs that aren’t monthly but occur on a regular basis, such as auto maintenance, home repairs, and holiday spending. Examine your bank statements and receipts to see if there are any expenses you’ve forgotten about.
Step 3: Take a look at what’s left.
After you’ve deducted your monthly expenses from your monthly income, you’ll need to select how to spend the remainder. Return to the objectives you set in Step 1. Assume your monthly income is $3,000 and your monthly expenses are $2,600. You could save $100 every month for a new home and another $100 in a tax-advantaged retirement savings account with the remaining $400. Whatever decisions you make, your budget can assist you in gaining control of your financial destiny.
If your monthly expenses exceed your monthly income, you’ll need to change your spending habits to stay under your budget. Examine your list of discretionary expenses to determine if there are any areas where you may save money, such as eating out less or skipping holidays or expensive hobbies. This form of evaluation and spending re-allocation can help you enjoy the money you have without fear of going into debt.
Step 4: Keep an eye on your spending.
Because your income, costs, and spending patterns will fluctuate over time, it’s critical to keep a close eye on your budget. Consider the following questions:
- Is it still on my mind?
- Are there any modifications that need to be made as a result of other changes in my life?
The overarching idea is to be aware of how much money you have available to spend rather than worrying about every dollar you spend. As an exercise, try monitoring all of your purchases for a week, or perhaps a month. You could be surprised by what you discover and discover some simple cost-cutting opportunities.
Conclusion and other suggestions
Budgeting does not have to be a dreaded task. Here are a few suggestions for making budgeting simpler and more effective:
- Make it a family effort by including the entire family. Explain the importance of budgeting and solicit suggestions for cost-cutting and other practical measures.
- Don’t begin your budget during a time when it will be difficult to maintain discipline. Begin in January, rather than either before or shortly after the holiday shopping season. That way, if you blow your budget the first month, you won’t be discouraged.
- Whether on paper or using budgeting software, use the system that works best for you.
- Reward yourself for sticking to your budget by treating yourself to a cheap indulgence.
- You can also try to increase your income, like be a freelancer, do investing, operate a website and get some passive income, etc.
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