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The personal finance advice that you will hear everywhere is that a budget is key to living your best financial life. A budget is the most accurate way to understand your spending habits and how they affect your ability to save. When you are creating a budget for the first time, it seems like a complicated process. But deciding to start a monthly budget shows that you want to manage your money better, pay down your debt, and save for your future. We will simplify the steps to take when creating a budget, so it’s straightforward for beginners.
The Basics of Budgeting
When creating a budget, all you need is a simple budget template. There are many different templates out there that you can find. Here are some that are great if you have Microsoft Excel, or if you have more time, you can find a simple budget template on Canva. There are also many free apps that you can find on the Apple and Google Play stores. Or use the “old school” route with a notebook and pen. Now you’re ready to follow the steps below.
How to Prepare a Budget for Everything?
When it comes to a question, how to prepare a budget for everything, we might think of how to pay streaming services, clothing, dining out and going to movies that we might enjoy having in our lives. Your budget should first cover your needs and then have enough left to put into your savings and wants. By budgeting specifically for these wants, you can avoid overspending.
Set Your Financial Goals
What are you trying to accomplish with your budget? Decide on what goals you want to focus on. They could be financial goals related to paying off all your credit card debt or saving money for an emergency fund. Goal setting is an important aspect in many areas of your life, and that’s true when it comes to your finances.
List Monthly Income Sources
Some people have one source of income from one full-time job and receive a regular paycheck with all the taxes deducted from it. That amount after taxes is called your net income.
If you have more than one source of monthly income, list those too. Include the net income or estimate how much you typically receive if the amount is variable.
Create Your List of Expenses
After writing your income and then continue to write out your list of expenses, you will have certain fixed expenses and stay the same each month. These expenses include items like your rent or mortgage, car loans, and student loans. These are the easiest expenses to track because they are the same each month unless you pay late and get charged a fee.
Other expenses you have will fluctuate. Your utility bills are an example of a variable expense. During seasons where the weather is more extreme, your bill will be higher than normal. Other variable expenses include gas and groceries.
With a monthly budget created, you are prepared to track your spending habits. Here are some budgeting tips to consider incorporating:
- Cut down your expenses. Look for areas that you can trim your spending. Meal prep your lunches instead of going out to eat or cut your cord on your cable TV are two examples.
- Put extra cash to work. After paying your monthly expenses, consider ways to put that money to good use. You could start an emergency fund or make an extra payment on your credit card balance.
- Decide if you want to use a budgeting method. There are many types out there, including the envelope system, 50/20/30 method, and the zero-sum budget.
Sticking It a Budget
To be successful with budgeting, you have to do the work of keeping track and sticking to it. Some ways that might help you approach this include:
- Automate where you can. Set auto-pay on your bills, which as a bonus will keep you from paying late fees. You can also set up automatic transfers for your savings accounts and retirement funds. Getting your money moved without having to lift a finger or rely on you having the time to do it, will make it easier.
- Try the envelope system. If you are having problems with sticking to your budget, put cash in a different envelope for each spending category. Once the money in a category is gone, you’re done too.
- Use tracking apps. Many banking apps also have a budgeting feature that you can link with your account and track real-time. It helps when you don’t have time to update your expenses list.