Having a monthly budget is a way to show an individual how much money they have earned and how it was spent. Having a monthly budget does not mean you are restricted. It’s made to help you to be more efficient in spending money. Budgeting can help you make the most out of your money. This is why it’s a necessary tool for achieving your financial goals.
A budget gives people an overview and control over their finances. Consumers of all ages benefit from creating their own budget and managing it. Are you having trouble with your finances? Are you wondering where your hard-earned money goes every month? Avoid having a potential financial crisis and start to get a hold of your finances. Create a monthly budget. Here’s a couple of tips to follow to get you started.
Set your goals and make them realistic
There are two types of goals when we talk about financial matters and that is immediate and long-term. The immediate goal is focused on the present. It’s how individuals use their money today. Long-term goals are the financial balance an individual wants to achieve over years. These goals will help people make smart choices when it comes to spending money. Both of these goals are important and they complement each other. How people save their money today will affect what they spend now. It also affects how much they’ll have saved in the future.
Decide on which goals will address the necessities and which one will cover the luxuries. This is when you can prioritize your financial goals. Immediate goals will cover current expenses such as mortgage, car loans, utilities, phone bills and food. Long-term goals will include retirement savings and investments.
Ask yourself this question: What do I want my finances to look like in a year? Determine what’s important and start there.
Identify your source of income and expenses
You should know how much money you make each month. Do you know where all your money goes? This second tip shows you the importance of tracking your expenses daily. Spend as you would normally but then write down every dollar you’ve spent. You can do this once a day or twice a week.
After you’ve set your goals, as mentioned in the first tip, you will need to create a plan to achieve them. Make a list of how much you earn monthly. This can include your monthly salary after taxes, any bonuses, and/or child support. Add these numbers up and this is your monthly income. Next part is to determine the expenses you have in each month. This falls into three categories: fixed expenses, variable expenses, and discretionary expenses.
- Fixed expenses have a fixed amount which you commit to pay every month. This includes mortgages or rent, car loans, etc.
- Variable expenses are the monthly expenses you have that varies in amount. This includes groceries, gasoline, utility bills, etc.
- Discretionary expenses are optional expenses that include recreation and entertainment. This can include a gym membership, shopping expenses, or movies. This type of expense is the one to cut if you can’t afford the first two categories.
By identifying your income and monitoring your expenses, you’ll be surprised by what you find at the end of the month.
Needs and Wants should be separate
The number one question to ask yourself is: Do I need this or want it? Can I live without this? The spending categories that fall under this include entertainment and dining out. While you don’t need to stop these expenses, you can often trim them out. Your budget will let you determine if you can afford those wants. Set and be clear about your priorities.
Plan and design your budget
The first rule of having a healthy financial situation is to make sure that you don’t spend more than you make. Balance your finances so your budget accommodates everything that needs to be paid. After monitoring your finances for two or more months, you’ll know what needs to be adjusted. Always remember that the inflows need to balance with the outflows.
Put those plans into action
Put aside the amount of money needed for the basic necessities. This may include housing, food, transportation, and utilities. Put aside money for loans, debt payments, and emergency funds. This will help you avoid going into debt. Match how you spend with how much you make in a month. Once you’ve worked out your budget, commit to it.
Another thing to have as a part of the plan is savings. It’s recommended that you have savings to cover up to six months of income in case of job loss or an emergency. Open up a separate account so that you won’t raid the emergency fund to spend on non-essential things.
Save up a percentage of your income
An easy way to save up every month is to automate your savings. Put away 20 percent (or depends on you) from your paycheck into the emergency fund that you wouldn’t be touching. The important thing here is that you start saving even little by little every month.
Commit to your budget plan and look ahead
Try to be on track with your plan and review your budget regularly. A month or two can be enough time for you to adjust to it. Seek advice when needed.
Creating a budget is doable, all you need to have is discipline, perseverance, and patience. Once you have created your monthly budget, commit to it. After following it, saving is the next thing to do. A great idea is to open a savings account with a reliable credit union, like Calcite Credit Union. Save up your money with a credit union that will help you preserve your financial future. Here’s to the good life!