I know budgets sound so boring, time-consuming and painful. But in reality, what is more painful is living week to week, spending your money on the wrong things and not having enough for other things. A budget is simply a plan that helps you prioritize your spending. Budgeting allows you to put together, prioritize and create a spending or savings plan. It ensures you’ll have money for the things that are important to you. Following a budget can keep you out of debt or get you out of debt. It really depends on what you’re looking to achieve and how you set up your goals.
It can be tough parting out with unforeseen expenses and just in general, if you’re not watching where you are spending, the money just seems to dwindle away to nothing. So keeping track of everything helps you keep focus, shows you where your spending is going and in turn helps you rectify spending issues to save more money. Keeping a budget is the smart thing to do, and assists immensely in reaching goals such as a down-payment for the purchase of a home, paying off debt faster to avoid interest, working towards a dream vacation, or just making ends meet.
There are some basic steps to creating a budget. The most important things to think about when creating a budget are: setting your goal, evaluating how money is spent and tracking your expenses to determine what you can cut or how you can change your spending habits to match your goals. While creating a budget sounds simple enough, it’s not always easy to create a budget and stick to it. To assist in the process we have included 5 steps to take so that you can create a budget that you can continue to follow as the days, weeks and months pass.
Print out a full month of any spending that has occurred. There are many accounting programs online that will easily pull data from your bank account and organize it based on expenses and income. Once you have a full month of spending available, evaluate it. Take note of what expenditures can be removed from your expense sheet. Items that are unnecessary as a means to survive and care for your household are considered unnecessary expenses that can be removed from the budget. We use a program called mint.com which draws information from our bank accounts and loan accounts. I have also found this to be the best way to keep track of all of our expenses for tax time. I can download a spreadsheet and have all of our spending information available in one place. Obviously, it doesn’t keep track of how/where you spend cash, so keep that in mind.
Fixed Costs & Income
In this portion of creating a budget, you will need to note what your take-home income is after taxes and other deductions that occur for your employment and/or business. If you have income that fluctuates, take time to pull an average total of your take-home income based on three months total divided by three. Take note of any fixed costs of living such as home payments, utilities, insurance and other necessary items that you pay monthly.
Final Income vs Expenses
The next step is to subtract your fixed costs from your take-home income. This leaves you with a specific monetary value that you will use to set your budget on. Some extra expenses that you evaluated in step one may need to stay on the books, but others can be removed. Determine what is best for your family based on the financial goals you have in mind. Once you have determined what you have for income after fixed costs of living, you can fully develop a budget.
Set a Goal
The most important step in creating a budget and sticking to it would be to set a goal of what you hope to gain by enforcing this household budget. Perhaps you want to save so that you have an emergency fund or you need a new family car. Making sure that you set a goal for some form of savings or an extra expense will help motivate you towards sticking with the budget you just spent time creating. Goals can be a need or want. It’s simply up to what you feel is best for your family at this moment in time.
Be Open to Revisions
Life happens and things come up from time to time. If you truly want to create a budget and stick to it then you must be open for revisions to happen. There will be times that you have to revisit and revise the original budget. During that time, follow each of these steps to ensure you are making a financially smart decision with the revisions.
There you have it… 5 tips to create a budget and stick to it. Creating a budget is really easy. If you follow these 5 tips, you will be well on your way to sticking to a budget on a regular basis.