Managing money can be tough. However, one way to better control your money is to create and follow a budget. Read on to discover how to create a budget that fits your goals.
Figure Out Your Goals
The first step in making a budget is to determine why you want to save money. Do you want to save for a short-term event like a weekend getaway or a long-term goal such as a down payment on a car? You might even want to budget just to live a better financial life. Understanding your goal will help you stay committed to a budget.
Budgeting requires making sacrifices, and having strong goals will help you stay disciplined when trying to adhere to a budget.
Determine Your Income
The next step in creating a budget is to figure out your income, or how much money you have coming in. This will be the starting point of your budget that will help you determine how to allocate your funds.
Track Your Spending
After you determine your income, you will want to figure out your expenses and track your spending. First, figure out your fixed and variable expenses.
Fixed expenses refer to expenses that do not change month-to-month and have to be paid. A fixed expense can also be called a “need”. These expenses include tuition, accommodation costs, utility bills, or loan repayments.
Variable expenses refer to expenses that can change month-to-month. A variable expense can also be called a “want”. These expenses can include items such as entertainment, gas, coffee, clothes, eating out, and groceries.
Plan a Monthly Budget
Once you have figured out your income (money coming in) and expenses (money going out), you can begin to plan a budget. You can create a yearly or monthly budget, but monthly budgets can be easier to adjust and realistic to plan around.
There are multiple ways to construct a budget, but one of the most popular formats is the 50/20/30 rule. The 50/20/30 rule states that 50% of your income should go towards your needs, 30% of your income should go towards your wants, and 20% of your budget should be allocated for savings and/or paying off debt.
You should set some money aside each month for savings and debt since these categories often get overlooked. Most people intend to save by using what funds they have left over after their expenses. This ends up making saving optional, and many end up not following through with it. By making saving a fixed part of your budget, you will intentionally set funds aside each month that will ultimately help bring you closer to your goals in the long run.
Along with saving is paying debt. Paying off debt is crucial for helping your credit score and reducing financial stress. Depending on your goals, you may want to aggressively tackle your debt in the short run, and as the debt goes away, then you may decide to use the money going towards your debt to save, invest, or grow your money.
It’s also very important to set some money aside in an emergency fund. This money should then only be used for unforeseen expenditures such as car repairs, medical emergencies, or other urgent bills that need to be paid immediately.
Evaluate Your Budget and Make Necessary Changes
Try out your planned budget for a month and see how it works out. Make sure your budget isn’t too strict where you have no allowance for emergency costs and not too lenient that you end up not saving any money.
Make sure you also account for various times of the year where spending may be higher such as summertime or the holidays. You want to fight the urge to make impulse purchases, however, you still want to have fun and treat yourself from time to time.
Sometimes you may start budgeting and realize you need to make adjustments. This is totally normal! Don’t be afraid to experiment with budgeting, but you should always try to maintain some kind of structure so that you are covering your needs, wants, and putting some money aside in your savings.
Don’t Be Too Hard on Yourself
If you have a hard time budgeting, don’t worry. Budgeting can be really difficult to follow at first, but if you keep trying, you will eventually start getting better at it, which will encourage you to want to keep at it.
Creating a budget is a fundamental component of financial wellness but sticking to a budget can be tougher. However, if you follow the steps above, you will quickly be on your way to managing your money better and becoming more financially fit.
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