A budget is a valuable tool that can help control your spending and plan for big purchases, such as a home or a car. However, many people do not know how to set up a budget or follow it. These tips will help you set up a budget and use it to manage your finances.
Gather Your Income and Expenses
The first step in preparing your budget is to have a clear idea of what you earn and what you spend each month. If you have a full-time job, figuring out your income will be easy. This will be more complicated if you work multiple jobs or are a freelancer. If you have multiple income streams, add up your different earnings to estimate your monthly income.
You should also estimate what you spend each month. Some expenses, such as rent or loan payments, are fixed, meaning that they are the same each month. Others, such as grocery bills or medical bills, are variable expenses, meaning that they change each month. Look at your spending for several months to add up an average of what you spend on different things.
Plan Your Budget
Once you know how much you earn and spend each month, you can plug those numbers in to create a budget. In your budget, set aside funds to cover your needs and wants. Be sure to set aside a percentage of your income each month for emergency savings and retirement. Setting up your budget will also tell you if you are spending too much.
There is no shame in asking for help if you need it when setting up your budget. Many financial planners are happy to offer budgeting advice. There are also plenty of resources online, such as the model budget. The model budget is a template where 50% of one’s income is dedicated to needs, 30% covers wants, and the remaining 20% is for savings.
Make Your Budget Work for You
The model budget is a useful template for those who are just starting to budget, but you can and should adjust your budget to meet your particular needs. Include your financial goals, whether they are paying off debt or saving up money for a trip, into your budget.
Your budget also offers an insight into your debt. Laying out all your expenses into a budget may finally help you realize how much you spend on repaying credit cards or student loan debt. You can try to eliminate those fees by increasing your payments or refinancing your loans.
Once you have your budget figured out, you can improve your financial health and start saving for big purchases, such as a car or a home.