Do you ever get a paycheck and then find yourself a week later wondering where all your money has gone? Do you have “someday I’d love to” financial goals that seem unreachable? Are you drowning under debt that you just can’t seem to pay down?
If any of this sounds familiar, you need to make a budget. Read on to learn how to make a budget and start reaching your financial goals today.
Pick a Method
The first thing you need to do when it comes time to set your budget is pick which budgeting method you want to use. Everyone handles money differently, and you have to find a system that will work for your financial approach and your lifestyle.
Some people like to use the 50/30/20 budgeting method. You use 50 percent of your budget to cover your needs – rent or mortgage, utilities, food, and other bills. 30 percent goes to covering your wants – new clothes, entertainment, etc. – and the remaining 20 percent goes to savings or paying off debt.
You can also set up a zero-based budget which assigns every dollar you earn a role. If you have any “leftover” money after your needs and wants are covered, you assign it to a savings account.
Some impulse spenders also like to use the envelope method. You withdraw all the money you plan to send during the month in cash and break it out into separate envelopes dedicated to different expenses. When an envelope is empty, your budget for that expense is gone.
Decide How to Track Your Budget
Once you’ve decided which budgeting method will work best for you, you need to decide how you want to keep up with your budget. Some people like to make a budget worksheet either on their phone or computer or with a pen and paper. You track your expenses by hand to get a better idea of where your money’s going.
Other people like to use one of the dozens of budgeting apps out there. These can automate your finances and let you know where you stand in your monthly spending. If you want a little more freedom to organize your budget in a way that works for you, many people like to use a bullet journal.
Find Your Net Income
The next thing you’ll need to do before you begin working on your budget in earnest is to find your net income. This is the amount of money you bring home after taxes, automated retirement plans, health insurance costs, and other non-negotiable expenses. This is also the amount of money you’ll be basing your budget around.
Take a look at all sources of income in your life; this could include your income, your partner’s income, passive income, and any side hustles you have. If your job doesn’t take out taxes, subtract the amount of your paycheck you’ll need to dedicate to taxes. Add together all those sources of income and you’ll have your total net income.
Take a Look at Your Current Spending
The other important factor you need to consider when making your budget is what your current spending habits are like. This is the part of budgeting that can get very uncomfortable. You need to look at exactly where all your money has gone for the last two to four months.
Break down your expenses into different categories – things like bills, gas, food, restaurants, hobbies, entertainment, etc. Don’t forget to include your debt and any automatic payments you may have set up. Once you know where your money is going, you can decide how you want to change those spending habits.
Decide on Your Priorities
Now that you have a better idea of where your money is currently going, you can decide how you want to reallocate your funds. Decide what your spending priorities are and what areas of your life you want to put more money towards. Do you want to pay down debt, save money to travel more often, or build up an emergency fund?
Take a look at areas where you could spend less money; some common ones are dining out, buying coffee, and impulse spending. Set a spending limit for those areas and shift those funds to the priorities you want to focus on instead. Use whichever budgeting method you picked earlier and create a plan for your ideal spending habits.
Start Tracking Your Progress
Once you have your new spending goals, the real work of budgeting kicks in. You have to track every expense and make sure you’re staying within the limits you set for yourself. This will mean managing your spending every day and sometimes not having the things you want right in the moment.
While sticking to your budget will take some work, it’s also important to make adjustments as needed. You may discover that you have a little more money than you need allocated to one expense and that another’s running a little thin. Don’t be afraid to adjust as you go, always making sure you stay focused on your financial priorities and goals when you do.
Learn How to Make a Budget
Knowing how to make a budget is a crucial first step to achieving your financial goals. Once you have your budget in place, you can be more intentional about your spending and start working towards your financial goals. Find a method that works for you, decide your financial priorities, and be diligent about tracking your spending and sticking to your budget.
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