Creating a budget might not sound like the most exciting thing to do, but it is absolutely necessary if you want to take charge of your financial situation and achieve your goals, both immediate and future. If you are new to this and not sure where to even begin, this might seem overwhelming, but creating a budget does not have to be an insurmountable task. Moreover, once you create it, managing your finances will be smooth sailing from here on out.
Here are some easy steps you can follow to begin creating a budget that works for you:
1.Track your spending: Before you can begin creating a budget, you need to find out what your expenses are. This means you need to take stock of what you spend on throughout the month to see where your money is actually going. Are you spending $40 a month on Starbucks coffee? Throughout this process, you are probably going to discover some ugly truths about your habits. You will not necessarily have to eliminate some of these items, but you might have to make some cut backs. These little indulgences make us happy, but you should not be losing a significant chunk of your income to them.
2.Automate savings: Saving on a consistent basis can be hard to do, so the easiest method to put cash away for the future is to simply automate your savings. Depending on your financial situation, you might be able to stash away a smaller or larger percentage of your paycheck, but you should try to aim for at least 15%. Maybe you can afford to save more, or maybe you will have to opt for less, but the point is that you need to start saving.
3.Figure out your wants and needs: Now that you have decided on how much to devote to savings, you have the rest of your paycheck to take home and spend, which is also an important part of budgeting. If you spend recklessly, you might end up eyeing your savings account to cover yourself throughout the month. About 50% or your paycheck should go toward essentials, while no more than 30% should go toward discretionary spending.
What are essentials? It includes housing, transportation, groceries, and utilities. If you find that you are spending too much in this category, you might have to consider moving to an apartment or other form of housing that is within your means. Discretionary spending encompasses the items that you want to have, but do not need. You might want to dine out, but this is not a necessity, so you should not overdo it.
4.Paying preferences: Part of maximizing your money will also include coming up with a plan for how you will pay for your expenses. Do you earn double points for dining out with one of your credit cards? Perhaps another card gives you 6% cash back when you shop at the grocery store. Make sure you are using the right card at the right time. You should also establish a strict payment plan for every card you use and make sure you pay every bill on time and in full.
5.Tackle debt: if you have any debt, you obviously cannot leave this out of the budget you create. You might want to consider consolidating high-interest debt to a balance transfer credit card, which could lower your monthly payments by reducing the total interest you pay on your total credit card. If you have a vast amount of debt, however, you might need to switch things up in your budget and put more of your take-home pay toward these financial obligations and less toward discretionary spending. It might seem tough to do now, but you will be glad you did it once you are no longer stuck in debt.
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