Are you making a sufficient amount of money yet always end up with $0 at the end of the month? If the answer is yes, do not worry! All you need to do is learn to manage your money better. There are plenty of ways to do that, and we have made it even easier for you. Check out these simple steps that will help you in creating a budget you can easily keep track of.
How to Create a Budget?
Some people are frightened of budgeting because they think it will require you to do all kinds of math. That is not true at all! Creating a budget is very simple as long as you know all the variables. So, without further ado, let’s begin with the process.
1. Accumulate Your Income
The first thing you need to do is figure out how much money you are earning. Your earnings could be coming from one source only, or you might have several different sources of income.
Once you have straightened these out, you need to see whether these are regular income sources or irregular. Simply put, regular income flows smoothly every month as a fixed amount, while irregular income may or may not be monthly and is never fixed.
In case you’re having difficulty in coming up with a sum due to irregular income, you can take the lowest income of the previous year to have a general idea of things.
Write down this sum in your notebook.
2. Analyze Your Expenses
The next step is evaluating your expenses. Of course, making a budget would not be possible without analyzing all your expenses. You must think of all the possible ways your money is going out.
You can categorize your expenses and make it easier to manage your money. Include your income tax (if not cut from your cheque prior), insurance, retirement plans, mortgage, utilities, child care, and even entertainment.
Your categories will depend on your spending habits and where your money goes. Organizing your spending will make creating a budget easy for you, and you will be able to track your money better because you will be able to see where it is going.
You see, this is essential to understand if you want to manage money better and cut down on some expenses. For a broader perspective, you can divide categories between monthly and daily expenses as well.
There are plenty of resources and apps available online that you can use to track your spending. You can also try creating a budget with Microsoft Excel if you want to keep it basic.
When assigning an amount for variable expenses, remember to be realistic. In contrast to irregular income, you must assign the highest value from the previous year so that you aren’t surprised next month when the variable expense goes up.
Sum up the amount and note it down.
3. Plan for Cutting Down and Saving
Now, this step depends on the total value you are getting for each; your net income and your expenses.
Cutting Down
Ideally, your net income should be more than your expenses. In case it is not, then you must cut down on your spending. For example, you could unsubscribe from some streaming services you don’t use, eat out less, change brands to shift to more affordable products, etc.
A great benefit of creating a budget is that you will know about your extra spending, and you will be able to pinpoint and cut them down. Often you spend money on petty things like snacks or coffee during work. So, it is quite understandable to lose track, but categorizing these expenses will show you how much you have been spending extra without even realizing it (it can be a significant amount).
Saving
So, your net income is enough to take care of all the expenses, and you are still left with some? Well, congratulations! You’re one of the few people who can currently save money in this economy.
Firstly, get the difference between both amounts. You can do this by deducting the spending from your net income. The amount you get is your leftover money.
Now, you must use this amount wisely. There are plenty of options to choose from like:
- Investing it
- Buying insurance if you need any
- Getting a retirement plan
- Allocating it for an emergency fund
- Paying off your debts
- Donating some to the needy
- Allocating it for next month’s spending or variable expenses.
What you do with your saved money is your call, but it is essential to be smart.
4. Maintain Your Budget Regularly
Once you have an estimate, you can keep track of your budget every month.
Whether you are cutting down or saving, it is essential to set a spending limit and adhere to it. There is plenty of material online on how to cut down on expenses.
However, the simplest way is to ask a friend to remind you of your spending limit if you are about to go overboard.
Another way is the 50/30/20 rule which will help you allocate your spending and savings in proportions.
If you want to be an expert at managing money, remember to track all your spending categories and analyze where changes occur. After a few months, you will start noticing if there are any discrepancies.
Now, if you find this process difficult, then for further monthly calculations, you can try any online app that can help you manage your money better.
To Conclude
Creating a budget will give you financial liberty. You will no longer be scratching your head to remember where you spent your money. Furthermore, it gives you the independence to plan your future.
Just remember that sometimes it may seem challenging. At times, you will go nuts wracking your brain to recall where you spent those $10. However, once you start managing your money, it will give you an understanding of your finances and the confidence to spend your money with a sound mind.
