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Budgeting is something most people avoid. They think it is too difficult or they just don’t want to face the facts. You shouldn’t think of it as a bad thing, in fact it is necessary to have a budget if you want financial stability in your life. It is your roadmap to reaching your financial goals.
A budget allows you to control your finances by deciding how your money is spent, pay off debt, save for the future, protect your credit and reduce wasteful spending.
Creating your budget and sticking to it is one of the most empowering things you can do for yourself, your family and your future. Here are five easy budget basic steps to get you on the right path.
Know How Much Money Is Coming In
You may or may not be surprise, but a lot of people only know vaguely how much money is actually coming in. You need to know the exact amount, combine all income such as take home pay, any side income you have and any other source such as alimony or child support etc.
Know How Much Money Is Going Out
You probably already know that most don’t have a clue how much money is going out or where it is going either. There are two categories that you need to consider, fixed and variable expenses.
Fixed expenses are usually about the same every month, things like rent or mortgages, utilities, car and other loan payments. Think of it as payments you HAVE to make to keep a roof over your head, keep your credit intact and live a comfortable life.
Don’t forget to include a contribution to your savings account which is essential in your financial future. People make the mistake of only saving whatever, if any, is left over at the end of the month. You should include a clear and fixed amount to save monthly.
Variable expenses are not constant or set in stone. They are expenses that are within your control, such as clothing, entertainment and other wants. Of course you need clothing, but you can certainly control how much you spend.
If your expenses are greater than your income, you need to cut back on variable expenses to balance your budget.
Balance Your Budget
If you have a surplus, Great!! Think about what you can do with it that will help you on you long-term financial goals. You could add more to the amount you are saving, grow your retirement faster or pay off your car or home faster.
If you have a shortfall you will have to find ways to reduce your expenses, The easiest way is to take a look at your variable expenses first to find ways you can reduce your spending. Are there items that you can downgrade or get rid of all together?
You can also find ways to reduce fixed expenses like refinancing loans with a lower interest rate or maybe downgrading your vehicle. Think outside the box to find creative ways to save some money.
If you still have a shortfall once you have done what you can to reduce expenses then you need to earn some extra income. Are you long overdue for a raise at work? What about taking on a side hustle to bring in some extra money.
Balancing your budget is the hard part but once you make the numbers work you will be well on your way to achieving financial stability and achieving your financial goals.
Manage Your Budget
After you have gotten you budget figured out, it’s time to find a way to manage your budget. There are tons of way out there such as websites and apps or creating a spreadsheet or using the envelope method to keep you on track with your budget. It doesn’t matter which you choose you just need to choose one to keep you on track.
Adjust as Needed
Your budget is not set in stone, if you keep overspending in one category, you can adjust that amount up but you will need to find a way to reduce spending in another category. After a little while you will have a budget that fits your lifestyle, helps you stay on track and keeps you on the road to a great financial future.
Please leave a comment if you have any other budget tips you would like to share.
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