Create a Budget In Three Steps
January 20, 2022
While there are many methods and tools you can use to establish a budget, it can still be a challenge to stick with it. Here are some steps you can take to learn how much money you have available to spend, and how to decide where to spend it.
First, determine your monthly income. This includes what you earn from your job, plus any other sources of income, such as side jobs. Then determine your net income — the amount you receive after taxes and other deductions (health and life insurance, 401(k) contributions, etc.). These are the funds available to spend in your budget.
Next, identify your priority bills like your mortgage or rent payment; basic utilities; auto payment; groceries; gas; debt payments, such as credit card balances; and insurance premiums. To budget for bills not paid on a monthly basis, calculate by dividing the amount of the expense over the appropriate number of months. For example, a quarterly payment would be divided over three months.
Finally, plan ahead by estimating other upcoming expenses. These might include holiday spending or a down payment for a car or house.
Having a budget and tracking your spending will help you to quickly see where your money goes. Use this information to ensure you pay your bills on time each month, save every month, and have some funds set aside for discretionary spending — the amount of money you spend on non-essential purchases, such as entertainment, eating out, gifts, and other purchases.
Reviewing discretionary spending can help you stay within your budget or even reduce your costs so you can save more. For instance, if you’ve been spending $100 each month on dining out, consider decreasing this line in your budget to $50. You can use the money you save toward building up your emergency savings account, paying down your debts, saving for retirement, or paying for a vacation.
Establishing and sticking to a budget is challenging, but by setting financial goals and working to keep up with them, you will have success in paying your bills on time, reducing your debt, increasing your savings, and saving for future purchases. Give it a try!
Tags: Money Management, Budgeting, Savings