When it comes to budgeting, there seem to be two popular ways of thinking. Either people think their income is too small for a budget or that they have enough stable income to forego budgeting.
Regardless of your current income level, budgeting is a useful financial tool that can help you keep track of your spending and help maximize your savings. Every month, you receive money and you spend it. What budgeting can do for you is give you a better understanding of how this exchange occurs, and help you make sure that your money is being designated towards sensible things.
With no plan for your money, often it can feel like taking a cross country road trip without a road map–you may get where you are going, but the trip is much more difficult than it needs to be. With a budget plan in place, you can create your own unique roadmap to achieve financial success and protect your future.
Determine Why You Want to Start Budgeting
In order for a budget to be successful and unique, you’ll need to establish one question: why? Why start budgeting for your income? Consider your financial goals and what it is that you want to accomplish for yourself, whether a month from now or years down the road.
While your financial goals are unique to you, some common reasons for budgeting include:
- Saving for Retirement
- Getting Out of Debt
- Paying Off a Title Loan or Auto Loan
- Saving for a House
- Paying Off Credit Cards
- Saving for a Wedding
- Saving a Certain Amount Every Month
Finding your personal financial reasons for budgeting can help you create a successful budget plan that gives you the motivation to stick to it. Financial goals can differ from person to person, and your budget should be tailored to your individual targets.
For example, if your main goal is to get out of debt, you may need to tailor your budget to dedicate more of your income towards a particular bill, rather than discretionary spending.
Write Down Your Monthly Income
Using your bank and credit card statements, you can see the exact amount that you have coming in each month. The income you will need to consider comes from items such as:
- Wages
- Benefits
- Alimony
- Interest from Savings
- Residual Income
- Child Support
In order for your budget to be successful, you’ll need to make sure that you include all the potential income you’ll be receiving. If you aren’t entirely sure if you will be receiving it, it is better to include it later, as you should not be relying on unreceived income unless absolutely necessary.
Establish Your Monthly Expenses
Once you have your income established, you’ll need to determine what your bills will look like throughout the month. Your expenses can be separated into two different categories:
- Fixed Expenses
- Variable Expenses
Your fixed expenses will be those that do not change throughout the month, such as mortgage/rent, trash collection, water, medical insurance, and other fixed bills. When it comes to your variable expenses, these are the bills that are not consistent every month. Usually, these expenses include costs such as transportation, groceries, entertainment, and takeout.
Once your income and expenses are established, creating your monthly budget can become even easier. Deduct your expenses from your estimated income and see what you have leftover. If you are outside of your means, it’s time to reevaluate your expenses to see what you can eliminate from your monthly bills. If you are spending too much in one category, like entertainment, it can be time to cut back!
Keep it with You
One of the biggest ways to stay on top of your budget is to keep it with you. If you prefer a physical ledger, keep it in a pocket or purse to keep track of all your purchases and expenses. If you prefer electronic methods, using an app on your phone can be a good way to keep track of your expenses. Keeping your budget with you can help keep you accountable, as it forces you to calculate your expenses and make note of them!
Adjust as Needed
Budgets will need to change as income changes, so if you ever earn more or less, make sure to adjust when necessary. Another reason to change your budget is if your financial priorities change, and you need to set more money aside. Whether this is due to the holidays emptying out your pockets, or an annual expense, budgets need to be adjusted accordingly to accommodate additional expenses and changing bills. You might have adjusted a cable bill or cut it out altogether, which of course means your budget will need to reflect that.
Cut Down on What You Can
One way to cut down your budget is to examine all your subscriptions and bills. If you are paying for subscriptions that you no longer need or use, cancelling them can help cut down on your budget. In addition to your subscriptions, it may be time to examine what bills you have. Are you paying for cable and not using it? If you have a phone bill, do you think you could find a cheaper plan? You may find that you are paying more than you need to!
Change Your Spending Habits
When it comes to creating your budget, you may find that having a successful one means changing your spending habits as well. While you do not need to go overboard and cut out any and all entertainment costs from your budget, you will need to make sure you are being sensible. If you are spending over $100 on Dominoes throughout the month, it may be beneficial to your budget to cut back on your takeout expenses.
In addition to this, some small habits that you might be able to change include getting daily coffee. While this may seem small, five coffees a week may add up to over $50 weekly! This money can instead be put towards another part of your budget that’s more useful.
