Budgeting is an essential process of keeping records and data on where to spend your money. It will also help us create a proper plan about where and when to spend our hard-earned money; therefore, it ensures that an individual always has enough in hand to spend on things and services necessary. Following a strict spending plan or a well-planned budget will keep you from making unnecessary expenditures and keeping you away from debts. Every individual should start using a budget spreadsheet, as it will help in determining where your money is spending each month. The important part is to find out a proper budgeting method that can work out for you. Listed below are the six major steps that can help you in creating a budget for your finance.
Step 1: Note Your Net Income
The first step in creating a well-planned budget is to know the amount of money you get in your bank account each month. When we are not sure of how much cash our bank account receives every month, it becomes easier for us to overestimate what we can afford with our salary. While creating your budget worksheet for keeping a record of every purchase, make sure you subtract your expenditure, for example, Social Security Money, Various Taxes, and all the flexible expenditure account allocation. Net Income is the final take-home salary that you will be using for creating your monthly budget. If you worked as a part-timer or freelancer, you should follow tips on managing irregular incomes to control your unnecessary expenditure.
Tip: if you have a talent or a hobby that can help you earn some money during your free time, it can help you supplement your monthly income. Making extra money using your hobby and talent can be more fun and helpful if your current job is not paying you enough.
Step 2: Track Your Spending
The second step is one of the most important steps as it will help you in categorizing and keeping track of your every spending, so you are very well aware of all the adjustments you can make if you are running short on cash when you are keeping track of all your spending where most of your money is put on. It also helps you identify places where you can save some of your money by quickly cutting down those things. You can easily track all your expenditure by following a few easy steps.
You have to begin by listing all the fixed costs: your regular monthly bills like house rent or mortgages, car or utility payment, insurance policies, or EMIs. Fixed expenditures are the expenses that you can cut down on and are to be paid every month. After listing down every fixed expenditure, you need to list down all the variable expenditures as well. Variable expenditure is the expenses that might vary from month to month like, gas and electricity bills, entertainment expenses, groceries. Variable expense is an area where you can find specific opportunities to save some money. Bank account statements and credit card details are the most reliable source from where you can categorize every purchase and services. It will help you in keeping track and also provide a firm hold on every small expense.
Tip: To make sure that your budget spreadsheet is accurate, you should record every spending, be it small or big – carry a small notebook and pen along with you to record your daily expense, or there are many apps and software that you can use instead. Bank of America has created a tool called the “spending and budgeting tool” for its account holder; this tool will record every expense and help you in creating a budget plan.
Step 3: Set Your Goals
Before following the collected information you’ve recorded, you should list the finance-related goals you want to achieve in the long and short period. Your short-term goals can be easily accomplished in a year, whereas your long-term goals would require savings for your child’s education, retirement plans, which may take many years to be fulfilled. Remember, your goals are not written on a stone, but you should identify your priorities before starting your budget plan for the month before everything. For example, it will be much easier for you to cut on some expenditure if you know your short-term goals, like paying off credit card debts or purchasing a new cell phone.
Step 4: Make A Plan
Make sure you use the compiled variable expenditure and fixed expenditure to help you know of payment you will perform in the coming months. With your fixed expenses, you can know precisely what percentage of your Income you should make your budget on. For predicting variable costs for the coming month, you can use your past spending habit as a guide. To save some money, you might cut down your expenses even more, between the things you would need and the things you want.
Step 5: Adjust Your Habits If Necessary
After performing the above-listed steps, you have all the information that would be required to make a well-planned budget. Having your Income and expenditure recorded, you can see how much money you are left with, or you can also see from where you can cut back so that you can save some money for your goals. Make sure you cut down on expenses that are related to your wants. Lastly, if your budget isn’t still adding up, you can adjust some cash from fixed payments. Cutting down on fixed expenses can be quite tricky, but you can find few saving areas with some close inspection.
Step 6: Keep Checking In
Lastly, you need to review your budget regularly; doing that would help you keep yourself on track. For more help and knowledge, you can compare your account with your colleague.