I had someone ask me lately, “How can I put together a budget?” The issue made me understand that budgeting is not a very clear process. Learning to successfully budget takes instruction.
Today I will show you some simple steps to create a budget that truly works for you. Be aware you will likely need to spend some time tweaking your budget at least at the start.
However, in the end, you’ll have a system down that works perfectly for you. Ready?
Steps to Creating Your Perfect Budget
Developing a budget that works means you are going to need to begin with following certain steps. The actions outlined here will help you get your financial budget into a location where it’s running like a well-oiled machine.
Where to start? Start by gathering all your financial advice.
1. Gather All Your Financial Data
When you are hitting the highway for a road trip, you need to understand how to get to your destination.
Creating a successful budget demands these same details. As soon as you know where you’re starting from, you can come up with a path that gets you where you need to be.
Collecting all financial data includes gathering bank statements, credit card bills, and bills. Additionally, it includes gathering any additional paperwork which shows your monthly expenses and income.
Use paper statements that you maintain at home. When you’ve accumulated all of your financial data, you can move on to step two.
2. Begin Integrating Up All Your Income and Expense Items
The next step involves adding up all your income and expense items. As far as income goes, you can write down your net pay for the month and insert it up.
Of course, when you’re married, you’ll want to incorporate any spousal income you might have. Also, don’t overlook second jobs, side hustles, or any other regular income sources.
Next, you will want to record your monthly expenditures. You may want to start by writing down your estimated expenditures on a notebook pad or an Excel spreadsheet. Some examples of expenses you’ll want to include are:
- Basic living costs like toiletries and food
- Personal expenses like cell phone, entertainment, salon, gym memberships, clothes, etc..
- And some other regular expenses which you may think of offhand. Writing your expenses down on paper or a spreadsheet is a great way to begin.
Handling Your Finances Online
We use an online service called Personal Capital to track our expenses. It’s a free service that links all your bank accounts to a single place. This way you can view your entire financial picture on one page.
This service requires a great deal of the nitty-gritty detail function from the equation. I no longer need to add up all my vehicle expenses for the month.
All I want to do is move in and ensure that they get categorized correctly.
Online budgeting systems like Personal Capital have been a game-changer for budgeting achievement. They allow you to save a lot of time managing your money. Plus they help you avoid financial errors too.
Another budgeting tool you might like is Mint. Mint is free like Personal Capital. But, it’s not as comprehensive of a website as Personal Capital.
The next step you’ll take is to compare your incoming expenditures to your outgoing expenses.
3. Compare Your Budget into Your Income
So you have gathered all of your financial data, and you have made an inventory of your monthly expenses. Then you have created a record of your income. Then subtract your expenses from your income.
Can there be money left? Great! We are going to talk about what to do with this money in a moment. Or can there be a negative amount at the bottom of your statement? In other words, would you have more money going out every month than coming in?
If your monthly expenses are higher than your income, you are going to want to begin tweaking your budget to decrease expenses. Work out how much money you need to cut out of your expenses to get to a zero amount left over every month.
This is called zero-sum budgeting. The goal? Give every single dollar you make work.
How to Produce a Zero-Sum Budget
The zero-sum budget works whether you do not have sufficient money or have some leftover every month. If you are short, maintain cutting expenses till you reach that number of zero where income and expense are equal.
Reduce or remove amusement or eating out expenditures
Reduce your grocery budget: There are lots of ways to save money on markets
Trade-in your pricey cars for additional reputable cars with lower or no obligations
Cut out non-essentials such as cable or satellite TV and health memberships
Find better deals on essential expenses like auto insurance
The Challenge Everything Budget plan can help cut costs. With the Challenge Everything Budget, you go through each line item in your budget.
Imagine if you’ve reduced your expenses as far as you can and are still coming up short? Then it’s time to increase your income. Check out this listing of 80+ side hustles to give you ideas for earning more money every month.
What should I Have Money Left Over Every Month?
Conversely, perhaps you’re at a situation in which you’ve got money left over each month once you add up your invoices. Or perhaps your budget shows you should have money leftover, but your bank account doesn’t.
This is a frequent problem, and it’s normally the result of unplanned, unrecorded spending.
By providing those leftover dollars a job before the month begins, you can avoid wasting money. Forget about throwing your money into that black hole of arbitrary spending that destroys so a lot of people financially.
We are going to discuss more what you could do with this leftover income next. How? By talking about what your fiscal goals are.
4. Create Your Financial Goals and Keep Them in Mind
Having composed financial targets is a vital part of financial achievement. You need to ask yourself, “What do I wish to accomplish financially?” Would you want an emergency fund? Or maybe you want to save for your child’s college or spend more for retirement.
Write down your top five or five financial goals. Attempt to find some short, moderate, and long-term objectives.
Short-term targets commonly take a year or less to accomplish
Medium-term goals usually require one to five years to reach
Long-term goals typically take over five years to fulfill
Try and work your listing so that you have two to three objectives in each category. If you’ve got a partner, work together to plan your goals.
Talk about what is important in your lives and where you wish to be in five, ten, or twenty years. Use the answers to determine your objectives.
Note that this goal-setting session might take some time, and that is fine. If you have never talked about aims, it’s going to take some time to think about what you truly want out of life.
Whenever you’re performing a budget, these aims help you to remember”why” you’re doing one in the first place. They assist you to spend your money in a way that’s most important to you personally.
For example, let us say you would like to save for a holiday in Italy next year. Having this goal will make it a lot easier to prevent spending too much money on eating out.
Understanding your goals can help you stay with the budget you produce. That is precisely why this second step is every bit as important as others.
5. Tweak Your Budget and Involve Your Spouse or Significant Other in the Procedure
Many couples don’t work on budgeting collectively. Nonetheless, this is a huge key to managing money in the union. If your spouse isn’t involved in the budgeting process, it will become simple for money struggles to sneak into your household.
Sit down with your spouse, and as a couple determines the quantity you will budget for each class.
There’ll be areas where he/she is going to want to spend more, so be flexible. And there’ll be areas you are going to want to spend more or less in. The aim isn’t to live on as little as possible.
The objective is to get a budget that works for both you and your spouse. And at the same time, helps you achieve your financial goals.
Having financial unity in your connection will help prevent strife. And it will help you reach your financial goals quicker. Even when you and your partner have separate currencies, talking about budgeting and money together is helpful.
Budgeting is an essential part of any successful financial plan. And using the steps above, you can produce a budget that will work for you. Just remember it will likely take some time and adjustments to get it right for you.
Can you use a budget? Do you use a budgeting tool like Personal Capital or Mint? We would like to hear what works for you. Share your tips and thoughts on our Facebook page.