No matter how high or low your paycheck, a budget is the best way to manage your money. A budget isn’t just something you need to make if you are in debt. Making a following a budget will keep you out of debt and in control of your spending and savings. If you’ve never set yourself a budget before, here’s how:
The first place to start when considering how to set a budget is to sit down and calculate the total of your monthly income. This is obviously the key starting tip as once you have a final figure down on paper you will be able to begin to plan a sensible budget. This may not be just your salary; as if you are business owner or have secondary income interests, then it will all start to add up.
Add together all of the monthly expenses that are classed as non-discretionary such as rent or mortgage, water bills, gas bills, car payments, groceries or student loans. Putting this figure together will help you to see what amount will have to come out of your budget every month without question. From there you will able to make plans for the money that is left over after the non-discretionary payments have been taken out.
It can be really helpful to sit down and physically write out your financial goals. Having a real, tangible copy to look back and refer to can help to create a vision of what your financial future could be like. Having a reminder that you strive to be debt free, want to start a retirement account or save up for a deposit on your first house will keep you inspired and determined to keep to your budget.
Once you have settled and sorted out all of your immovable, non-discretionary expenses, you will be able to relax a little and start to consider which non-vital, discretionary expenses that you might be able to cut back on if that is one of your goals. It may be something as small as committing to make your own lunches instead of buying them, or it may be something more serious such as sacrificing a summer holiday this year, but the good thing about non-essential expenses is that you get to decide what you keep and what you cut. If you just want to manage your money better through a budget, listing your non-vital expenses will give you a good picture of where your money goes.
You can determine your cash flow by subtracting your expenses from your monthly take home pay. The term cash flow applies to the difference between your money coming in and your money going out, and if your calculations come out with a positive number then you are already on the right track. If it comes out negative, then you have a basis to plan to start cutting back on certain non-essential expenses in order to get in to the black.
Don't think that once you have set an initial budget that it is completely set in stone. Your budget should be flexible enough to change whenever your own personal circumstances change, so make sure that you leave enough room for maneuver so that you don't end up struggling if times change.
We all have smartphones or tablets these days, and a great and easy way to first set and then stick to a budget is to install an app that you can keep tabs on regularly. The app will take the hard work out of setting the budget and then, having your entire budget at your finger tips will motivate and remind you to stick to your agreed non-discretionary cuts and you will get an enormous sense of well being and fulfillment by successfully sticking to your goals. If you don’t want to use an app, there are free budget templates available online.
Do you already stick to a budget? Or are you now inspired to make one?