An important component of a solid financial foundation is creating a budget. A budget can help you manage your finances, rein in your spending, increase your savings, pay off debt, or avoid going into debt.
You can easily overspend or end up using credit cards and loans to pay your payments if you don’t have a clear view of what’s entering and leaving your bank account. It would be wise to revise your budget if you currently have one.
Print a budget worksheet by downloading it.
To start, use a worksheet to guide you through the subsequent steps. Your budget worksheet can also be made using free spreadsheet software, such as those from Vertex42 and It’s Your Money, or even just paper and a pen.
Include Your Income
Determine your monthly income as a starting point. Add up all dependable income, including salary from a job, alimony, child support, and other payments. Take note of the word reliable. Don’t list money from side employment or hobbies as income in your budget if you don’t receive it frequently. You should be able to rely on your budget.
Use an average monthly income or an estimate of the money you anticipate receiving in a given month if you are self-employed or have a variable income.
Add up all of your costs.
While some of your monthly costs, like your mortgage or rent, property taxes, child support, and alimony, are fixed, others, like energy, water, and groceries, might change. List each fixed expense together with its associated cost.
Write down your expected bill amount or the maximum amount you intend to spend on variable expenses for each category. For instance, you might budget $500 for food and $150 for transportation.
To determine how much money you regularly spend each month, consult your prior bank and credit card statements. You may miss some expenditure categories by looking back on your previous transactions.
Some of your costs don’t happen every month. However, including those recurring costs in your monthly budget can make it simpler for you to pay for them when they’re due. The monthly amount to be accounted for in such categories is calculated by multiplying the annual and semiannual expenses by 12 and 6, respectively.
Figure Out Your Net Income
Your remaining funds after all expenses have been covered make up your net income. For the purpose of applying it to your debt, savings, or other financial objectives, you want this to be a positive figure. Subtract your monthly costs from your income to determine your net income. Even if the number is negative, record it nonetheless.
Adapt your spending
Your budgeted spending exceeds your income if your net income is negative. You’ll need to fix this. Otherwise, you could have to borrow money, utilize your credit cards, or overdraw your account in order to survive the month.
The easiest locations to cut back on spending are usually your variable expenses, such as eating out, hobbies, and entertainment. Even some of your set expenses can be changed, such as your phone or cable subscription, gym membership, or whether you take a trip this year.
Analyze your spending by comparing your wants and necessities. Spend less or stop buying those “want” items to free up money for the ones you “need” to buy.
Maintain a Spending Log
Compare your actual expenditure to your budgeted spending during the month. This can assist you identify where you spent extra money if you go over budget. You can be more careful in the future not to overpay there. Or, you might need to change your spending plan to account for the extra costs. To maintain balance, reduce your budget in one area while increasing it in another.
Questions and Answers (FAQs)
How does the 50/20/30 guideline apply to financial planning?
The 50/30/20 budget divides your income into three categories: needs, wants, and financial goals. Financial objectives may include setting aside money for debt repayment or retirement or college savings.
How do you manage your finances?
You must frequently monitor your expenditure and compare it to your budget categories if you want to live within your means. The more often you reconcile your budget, especially when you first start off, the better. You’ll eventually be able to forecast each category’s funding requirements more precisely.