I hear you and agree, the word itself can bring on anxiety and irritation. However, while a budget can seem restrictive, taking control of finances often becomes the most liberating decisions a person can make.
Having a budget that you adhere to each month is the quickest and best solution for paying down debt and investing in your future.
If you are like most people, it can be difficult to stick with your plans even with the best of intentions. So below are some tips on how to create a budget and reap the benefits.
Tips on how to create a budget:
Know your dough – Determine how much money you will earn for the month. Be realistic and consider variations of pay throughout the year. If hours fluctuate, or increase during a specific season, don’t assume your best months will continue during an off season. Conversely, make sure to use all sources of income such as child support, disability, interest on investments, etc. Seeing your earnings on paper versus how much you owe may be a sobering look at how you are spending but is an important part of being financially aware.
Calculate your costs – Figure out exactly how much you are paying out each month by consulting your bank statements, receipts and financial files. You can separate expenses into two categories: fixed expenses and variable expenses. Fixed expenses are payments that do not change each month such as rent, car payments, etc. Variable expenses are costs that change based on usage such as your phone bill, power bill and other utilities. Groceries should also be included in this category as well as clothing, dining and all entertainment costs.
Build your plan – A realistic savings or debt payoff plan starts with figuring out if you have a budget shortfall or overage. Simply subtract your expenses from your income. If you find that you are spending more than you are earning, it is time to eliminate some expenses. Prioritize your expenditures to determine which are important and cut back where applicable. Ideally, you want to have 10-20% of your income left each month to add to your savings account. To learn how to pay down debt and create an emergency fund, we at Landis like the Debt Snowball method which you can find out more about here.
Track your spending – One of the best ways to stay within your budget is to record all your expenses and income. When you input all expenses, you are creating awareness of where your money is going each month. There are many useful apps and websites to help you track your spending habits and maintain a budget. Mint is a great one.
Budgets allow you to better handle having an excess of money or perhaps an unexpected shortage. For example, if you end up with more money than estimated, your first thought may be to splurge instead of save. With a budget, you will know if you have enough saved to warrant that purchase without incurring unnecessary debt. On the other hand, if unexpected expenses arise and you have budgeted correctly, you will be able to use your savings instead of relying on credit cards.