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Any time you’re trying to get your financial house in order or explore ways to spend less and save more, creating a monthly budget is key. Your budget can act as an important yardstick to regularly measure your financial activities against and track where your money is going, where there are opportunities to tighten spending, and whether you’re on track to reaching your goals. Even if you’ve never formally created a budget, it’s never too late to get started! Here are six steps to help you craft a budget and find a better balance financially.
To begin planning your budget, you’ll want to gather some basic information. First, determine the amount of after-tax income you receive each month from your employer. If you bring in additional income from a part-time job, seasonal work, bonuses, child support, or some other source, be sure to include that money in your total amount. If your income varies from month to month, write down the lowest amount you expect to receive. Once you have all income sources tallied, this is your net income and will help create a clear picture of your take-home pay each month.
Your next step will be creating a list of your monthly expenses and their amounts. Getting as detailed as possible can help you get a more accurate idea of your spending habits and how to design a balanced budget. Don’t forget to include some of your less frequent expenses like car registration, haircuts, or contributions to charity. Here’s a list to help get you started:
Once you have all of your income and expenses calculated you can now create your budget. Compare the total amount of your monthly income to the total amount of your expenses. Ideally, you should have more income than expenses, if you don’t, you’ll know that adjustments will need to be made, like cutting back on unnecessary expenses or finding ways to increase your income. If you determine you have some money left over, you could put more toward savings or reallocate it to paying down credit card debt. Oftentimes, small adjustments can make big improvements, so do not feel overwhelmed if your budget requires some fine-tuning to get your finances more in balance.
After your budget is established, you will need to regularly check your progress. Just like adopting a new exercise routine, to see results, it takes an ongoing commitment to keep working toward your goals. Tracking your spending at the end of every week can be beneficial, especially after creating a newly-established budget to ensure your numbers and spending habits are accurate. To track your spending more easily, several helpful budgeting apps allow you to categorize your expenses, identify places of overspending, and get a visual picture of your financial habits. By doing this review every week, you can quickly spot any issues and make adjustments before the end of the month.
As you create your budget, you may also want to consider setting up automated bill payments to align with your recurring bill cycle. Not only do you ensure your money is going to the right places at the right time, but it helps lower the stress around missing a payment and having to cover late fees or penalties. Some services will save you money on your bill by setting up autopay, so consider exploring what companies offer these discounts. If you do not wish to set up automatic bill pay, but still want the assurance that you’ll pay your bills on time, you may want to sign up for email or text reminders that will alert you when a bill is coming due.
At the end of each month, take a close look at your budget and determine if your saving and spending habits were on track. This exercise doesn’t have to take long, but keeping an eye on the money coming in and going out helps you hold yourself accountable and curb major financial issues before they arise. Your financial situation may change, when life events happen or emergencies pop up, but the better health your budget is in, the better you can adapt to unexpected expenses. Revisiting your budget regularly also helps you make adjustments as new goals are added or if your situation changes, like starting a new job, buying a new car, or getting married. While the idea of creating a budget may seem less than appealing, the process doesn’t have to be complicated or stressful. Many great tools can help simplify the process and make it personalized to you and your goals. By taking steps to get all your financial pieces in place, you can become more in control of your money, instead of the other way around, and help set you up for success today and in the future.