Whether you are just getting ready to graduate college, move out on your own or simply have never been wise with your money in the past, it is high time you created a budget. Living in the real world necessitates that you do the right thing with the money that you earn. A budget will help you to keep track of your earnings, track expenses and to stay on track to meet your future financial goals. People often fear that creating a budget is difficult or time consuming. In reality, though, it is simple to create a smart budgeting plan and to put it into action. You don’t even need high tech tools to get started. Grab some paper and a pencil and then follow the steps that we have laid out for you below.
It doesn’t matter if you make a ton of cash every month or are starting a new part time job, you have to keep track of exactly how much money you earn every month. Include ALL money. If you make a couple of hundred on eBay or Uber every month, be sure to include this extra cash in your budget plan. Create a column on your sheet of paper that lists how much money you make after taxes each month. This should only take you a few minutes at the most.
Budget Creation Step 2: List out Fixed Expenses
Create another column and it’s time to move onto the next step. You are now going to list your fixed expenses. These expenses will include rent/mortgage payments, car loans, utilities and even credit card payments. For the majority of people, these expenses stay pretty consistent from one month to the next; thus the title of “Fixed Expenses.”
Budget Creation Step 3: Make a list of Variable Expenses
This can be difficult, but you need to list out expenses that change frequently. Perhaps one month you spend $400 at the grocery and another you spend $600. Or maybe your gasoline payments change each month. To budget for these types of varying expenses, try to find out how much you have spent on each for the past year, add up the total for each and then divide by 12. This should give you a good ballpark figure to put into your budget. If you happen to spend more, you can always tweak this listing as you move forward.
Budget Creation Step 5: Make an Entry for Saving Money
Smart financial minds usually tell people that they need to pay themselves first. Your savings fund is your way of paying yourself. Set aside some money that will be saved each month, and add in a set amount of discretionary cash too. Stick to this step, and make sure that you ALWAYS save money every month. Even if you have to cut a bit from some of your discretionary spending, saving money will always be a habit that will pay off for a more secure financial future. Try to save at the very least 5 percent of your after tax salary, and even more if you are able to.
Total up all of your expenditures – Fixed Expenses plus Variable Expenses plus Savings. Subtract that number from the total amount that you earn every month. Do you have any left over? If so, add that extra money to your savings budget. If you find that the expenditures are more than you make, it is time to make some cuts. Find some variable expenses that you can live without – maybe cable TV or eating out – and you should be able to wind up at a perfectly balanced budget.