The thought of having to have a budget may worry you. It may even scare you. It is hard to know how much you will spend every month on the things you need to buy and the debts you need to pay. Yet, you may know that having a budget is critically important to maintaining your financial health. It all comes down to creating a budget that is designed well enough to allow you the flexibility you need. So, how do you create a budget that you can actually follow? Consider these steps.
Know Where You Are Spending First
You have two options here. You can spend some time working through the last two months of purchases and payments made through your credit cards, loans, and checking account. Or, you can start this month by calculating how much you spend every day. The key here is to know where your money is going, and there is no better way to do it than to track expenses. A big mistake many make when creating a budget is guessing at these amounts. That leads to inaccuracies that make it impossible to follow a budget.
Start Building a Budget with Consistent Payments
Some payments you make each month are the same every single month. This includes your mortgage, car loan, and perhaps some of your utilities. These are fixed payments. Though you may be able to negotiate them lower with your lenders, they generally will stay the same every month. Add these to your budget as a first step.
Gather Your Income Sources
Where do you get money from? List each of the sources you have. If you do not have a set monthly payment, consider the average for the last six weeks. Another common mistake is assuming you'll get overtime or have more to budget than you do. The easiest way to complete this step is to review your last several paycheck stubs since taxes will already be taken out.
Managing Those Unknown Expenses
For the other expenses you have that may be differing amounts month to month, consider these tips:
- Create a category for each expense. This should include everything from utilities to groceries.
- Include a category for “spending money” such as eating out, entertainment, etc. Trying to eliminate all “fun money” from your budget is the quickest way to creating a budget that will not be followed.
- Create a category for saving. Even if you do not currently save regularly, still create the category in your budget.
- To determine how much you need for each category, look at the last six weeks to two months. Create an average for how much you actually spent in these areas.
Managing Your Budget
When you build a budget using how much you actually spent, you can get an idea of how much you need. But, it does not stop there. From this process, you can determine where you can make adjustments over the long term. Could you spend less by cutting back on the cable bill? Perhaps not eating out once a month will allow you to put $50 into a savings account.
Manage this budget each month. Balance your actual spending with your budgeted expenses to see how you did that month and make any necessary changes. Realize it will change from month to month, too. Just having it visually displayed for you can help you see where you are spending, and it gives you some direction on how to make smarter financial decisions.
We’re Here to Help!
If you have questions on budgeting or need assistance getting the most out of your accounts, stop by or give us a call at (409) 899-3430.
