At the end of each month, you should never wonder where all your money went to! You should be in control of your spending, knowing how much money remains in your bank account each time you make a purchase. Creating a budget is the answer to this problem!
Creating a budget may look difficult, but it is actually very easy!
All you need to know is the amount of money you make per month and the amount of money you spend per month. Hopefully when you subtract the two, the difference is a positive dollar amount or a zero. If your answer is a negative number, that means you are spending more than you make!
I can recall several times when I looked through my monthly balance and it came out negative – not a good feeling! But I knew that it was my fault because I had never set up a budget and learned to control my spending. I came up with a new money motto for my life, “Have a name for every dollar!” This way, I would never spend any money without knowing how much I had left over and being in control of my spending.
Below are 5 simple steps to creating a budget – especially if you are a beginner!
1.) Calculate your net pay per month.
Your net pay is also known as your take-home or after-tax pay. This is the amount that you actually receive from your employer after they have paid all taxes: federal, state, Social security, Medicare, unemployment.
Don’t forget all sources of income: your spouse (if you share finances), social security, disability, or a secondary job. You may have other deductions as well –such as employer sponsored 401 (k) plan and health insurance.
You need to know the correct amount that you receive each month to have an accurate balance to deduct from at the beginning of each month.
2) Plan out your budget
Designate each dollar to a spending category.
Start with your needs : groceries, mortgage, and utilities.
Next, move on to your debts: credit cards, student loan, and car loan.
Finally, designate some money for savings and investments. Although, this step is often ignored, it is incredibly important for your financial security and retirement.
Lastly, move on to your wants: entertainment, eating out, and clothing.
Once you add all your monthly expenditures, subtract the total amount from your original net pay. If done correctly, it should equal zero. This is called zero-based budgeting – every dollar earned is placed into a category and accounted for. Any remaining money should go into your savings or investments.
Pro Tip: Remember the 50-30-20 Rule – putting 50% of your budget toward necessities: bills, groceries, and housing. 30% goes towards things we want: eating out, entertainment, and shopping. The remaining 20% will then be put towards savings, investments, and paying off debt.
3.) Find a good way to track your budget
There are a lot of great apps out there that allow you to set up your own budget and track your savings. A couple apps I would highly recommend would be Mint, Personal Capital, and Every Dollar (Dave Ramsey).
All of these apps will track your digital spending from your credit and debit cards. First, you must input all the data and cretit/debit card information – then the app will start to track your budget by itself. Don’t forget to input any purchases you made in cash.
If you are not a technically savvy person, you can also create a spreadsheet and place it on your refrigerator.
Find a way to track your spending that will encourage you to FOLLOW THROUGH on!
4.) Automate your Bills
Automating your bills makes it incredibly easy to stay on course.
Set up automatic bill-pay through your bank for all your recurring expenses: utilities, mortgage, rent, student loan, car payment, etc.
These recurring bills can also be tracked through your budgeting app without manually inputting all the data. This will save you a lot of unnecessary time!
5.) Review your budget at the end of each month
Is the budget on track? Does the budget including every payment you make? Ask yourself these questions in order to keep your spending in check. What is the use of a budget without correct information? You want your budget to be 100% accurate and help you get your spending back on track.
You need to find a way that not only helps you to control your spending, but also encourages you to follow through and stick with your budget!
Follow these steps to set up your budget and then schedule an appointment with a local financial adviser. No matter your age or situation, there is no better time to take control of your finances then NOW!
If you have any questions about this article, just let us know in the comment section below! We’d be happy to help you out!
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