Are you looking to create a budget that works?
Creating a budget that works is an extremely influential factor in having a healthy financial plan and can be of significant benefit to you!
It may be a daunting thing to begin to think about, but the sooner you get it done the sooner you can start paying off debts and all around have a better financial future.
This article will list some steps in beginning to budget and some basics on how you can create a budget that works for you!
What is a Budget that Works?
A budget is a plan, based on an individual’s finances, income, and expenses, that generally aims to reduce spending.
Budgeting is an active way to improve various aspects of your finances and can be extremely beneficial to you!
Budgeting generally helps to decrease overspending as it requires you to consider your spending and place a value on how much you are allowing yourself to spend on non-necessities.
This may prevent you from relying too heavily on credit cards to pay for your needs or desires, a debt trap many have fallen victim to.
It may also help you to be prepared for any unexpected emergencies in your life by ensuring you have adequate funds to pay for such situations.
If you are suddenly fired from a job or are seriously injured, budgeting can help you to be able to afford these dire matters without falling too far into debt.
Creating a budget, and sticking to it, can also decrease stress surrounding debt repayments and other financial matters in your life.
If you have found yourself unable to sleep at night, tossing and turning worrying about how you’re going to be able to pay your bills, budgeting may be for you!
Create a Budget that Works by Calculating your Income
In order to begin creating your budget, you will probably want to calculate your income.
Calculating income is the process of working out how much money you are receiving in income over a period of time, generally over a month when wishing to make a budget.
This includes any and all money you receive, including general work payments and any other side businesses or jobs you have!
Ensure you include the income of any other members of your household that contribute to expenses, such as roommates or partners, to create an accurate calculation.
For example, if your personal income is $1,000 a month and your roommates are $1,200, together you have $2,200 that you can split on rent, bills, groceries, etc as necessary.
Create a Budget that Works by Calculating your Expenses
Once you are aware of your income for a month, you can then move on to calculating the expenses that said income is spent on.
A method you can use to do this is to split your expenses into main categories and then any leftover funds into savings and leisure for the month.
You may want to form a list of all expenses you can think of that will come out of your pocket over the progression of the month.
These expenses may include:
- Electricity bills
- Water bills
- Gas bills
- School fees
- Groceries
- Coffee
- Restaurant meals
- Child care
- Gym fees
- Travel
- Savings
- Petrol
- Subscription services (e.g., Netflix)
Once you are aware of your monthly expenses, you can accurately distribute your income across said categories.
You may want to subtract the sum of your expenses from your income to make sure that you have split it accurately and check if you have money left over.
Track your Finances
An important, if not essential, step in creating a comprehensive budget that is tailored for your personal needs is properly and consistently tracking your finances!
This may seem like an unnecessary, time-consuming task, but your future budget will thank you for it.
To properly track your finances, it is wise to keep an organised file of all relevant financial documents from the past.
This can assist you in estimating a monthly average of costs spent per month in your general life, the information you can use to create your budget.
You can also pinpoint spending habits by simply looking into your accounts, such as credit card accounts, to figure out your financial decisions in the past.
From this process, it may be easier to identify mistakes you may have previously made so you can make a conscious effort to avoid them in the future.
Stick to it
Budgeting is all fun and games until you actually have to use it!
It may seem like a bother to stick to, but budgets, believe it or not, only truly benefit you when you use them.
To make sure you stick to your budget, it may be a good idea to write all of the details down. This way you will likely find it easier to remember the specifics and will have something concrete to hold you accountable if you happen to overspend.
You may want to also avoid relying too heavily on borrowed money through platforms such as credit cards as, if handled poorly, debts may affect your financial future.
Be sure to keep your budget reasonable and incorporate a “wants” category into it, as depriving yourself of all enjoyment regarding money will likely make the budget harder to stick to.
Remember, everyone’s financial situation is different and it is important you find a system that works for you.
Create a Budget that Works by Adjusting as Needed
Your personal finances are constantly changing, so make sure you are consistently checking up on your budget to ensure it still applies to your daily life.
This is extremely important to both maintaining and sticking to your budget as an outdated plan will likely affect your ability to keep it in action.
For instance, you may find yourself in debt or simply low on income for whatever reason.
Do you think your older budget from when your income was higher will still apply to you now? Of course not!
Your finances will constantly be growing and developing throughout your life, and as you pay off debts or land in more you will need a different approach to money!
Remember, a realistic budget is the only kind that will genuinely assist you!
Create a Budget that Works – Key Takeaways
Budgeting can be a difficult task to maintain, but it is super important that you do so, especially if you’re looking to pay off your debts.
Keep in mind that one person’s budget is highly unlikely to another, so tailoring it to your needs is vital.