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If you want to get your finances in order and get out of debt, one simple rule is: set a budget.
A budget allows you to know where exactly your money will go. Establishing your spending limits will help you spend your money responsibly.
But let’s face it: sometimes, it is hard to stick to a budget.
If you want to develop the right spending habits and set aside money for savings, it’s a must to create a personalized budget. This guide will help you get started with your first budget.
Determine How Much You Want
Believe it or not, only a third of all the households in America are living by a strict budget.
The first step to make budgeting work for you is to decide on a budget. Write down the minimum amount of income that you can earn in a month.
Don’t forget to add all your income: wages, side jobs, alimony, business, and even investment.
Take Out Your Savings
Before you plan anything else, make sure you take out your savings first.
A good rule of thumb is to save at least 30% of your current income. However, that might not apply to everyone, especially if you have a family. It’s a goal maybe for later on, or maybe you can tighten up your spending game and do it now.
When determining your savings, make sure you can maintain it every month. You can set aside 20 percent or 10 percent, as long as know you can save it on a monthly basis.
Pause and take some time to set your financial goals.
This step is important as it will give you a plan and help you prioritize what is important for you and what your day-to-day spending limits should be.
Do you want to save more money by the end of the year?
Are you planning to take a big vacation?
Do you want to be debt-free?
Write down your goals and think of them as “expenses” that you’ll add to your budget. As you save be sure to set aside money monthly toward those goals.
Decide How Much To Save
Once you set your financial goals, you need to decide how much you’re planning to save.
If you’re planning to place a $200,000 down payment on a house in five years, you need to save at least $3,000 in a month.
If you’re building your emergency fund, save at least $100 every month.
Know Your Expenses
Write down your expenses.
This will differ from one household to another but when writing down the amount you’re spending on a monthly basis, ensure that it includes each and every expense you have.
Your expenses might include:
- Student Loan Payments
- Dining Out
Subtract Your Income From Expenses
Now is the time to allot the amount for your expenses.
Subtract your expenses from your income (after taking out the savings funds).
If you get a positive number, it means you make money more than what you need. You can adjust the amount set to your expenses or put aside the difference and place it in your savings.
If you break even, you’re making enough, but there is no margin.
However, if you have a negative number, it means you’re spending more than what you’re earning or you don’t make enough income and you might need a lifestyle change. Maybe adjust the budget that you allot to your expenses or make some extra money on the side.
Monitor Your Budget
You’ll know that the budget is working if you can stick to it.
Instead of just counting your money, try and track it using the traditional pen and paper method or use different apps.
The first months of budgeting can be tough — but that’s okay. If you stick with it, you will be successful. Besides being successful you’ll have a sense of accomplishment and security that you have emergency funds set aside and/or you can look forward to your new house or that big vacation.