Budgeting is a necessary task for anyone who wants to be wise and informed about their finances. You may be surprised by how easy it is to rack up “little” purchases that really add up.Whether your budget is large or small, it’s important to maximize it in the best way possible, ensuring all of your bills are paid and expenses don’t exceed your income. If you’re stuck, try recording everything you buy over a period of a week or two. Take a look at your expenses and honestly identify the categories you can cut back on or eliminate. If you’re unable to reduce your expenses by a sufficient amount, consider ways to increase your income. Your expenses exceed your income: This is a situation that you’ll want to analyze and take steps to correct.Look for ways to cut costs so you can set aside some extra savings each month. Your income equals your expenses: It’s a good start, but spending less than you earn is essential to protect against the unexpected and achieve financial goals.You may even find you can reduce spending in certain areas to further boost your savings. Your income exceeds your expenses: Great! Now look at using some of that “extra” to pay off debt or add money toward short- and long-term goals.You’ll come up with one of three results: Step 5: Add up all your income and expensesĪdd up your income and all your listed expenses. Identifying these will come in handy once you start thinking about ways to cut costs. Expenses in this category are often more flexible, making them easier to adjust to fit your budget. Variable expenses change from month to month, such as groceries, gas, clothing, entertainment, etc. (Tip: Include savings in this category, too.) Fixed expenses occur regularly and cost the same amount each month or year, like rent or mortgage, insurance payments and subscriptions. Sort your expenses into two categories: fixed and variable. Step 4: Divide up fixed and variable expenses Saving is easiest when it’s a built-in part of your monthly budget. These may be easy to miss but can quickly eat up big portions of your paycheck.ĭon’t forget to list an amount for short-term and long-term savings. Scan through recent bank statements and receipts to catch small or random purchases. An amount for unforeseen expenses (e.g., a car repair or an appliance replacement).The average cost of purchases that typically occur each month but can vary from month to month (e.g., eating out, groceries, dry cleaning, gifts).The average monthly cost of expenses that you pay quarterly, semiannually or annually (e.g., car insurance, property taxes, some utilities).All payments you make on a monthly basis (e.g., rent or mortgage, utilities, car payment).Make a detailed list of everything you spend (or plan to spend) money on in a given month, including: If you’re starting a new job, an online paycheck calculator can give an accurate estimate of your after-tax earnings. Be sure to include all sources of income. For example, if your long-term goal is to own a home, a measurable goal may be to save $50,000 (or X amount) in five years (X amount of time) for a down payment.įigure out your total net (aka “take-home”) income and record it as a monthly amount. Are you looking to get out of debt? Hoping to reduce overspending in certain areas? Wanting to save up for a major purchase? Focusing on objectives will help you make important budget decisions – and keep you motivated to stay on track.īe specific about your goal and, if necessary, set a deadline. Start by defining your goals for budgeting. Follow these eight simple steps to get started. Once you understand your monthly spending habits, you’ll be able to make adjustments and empower yourself to save for the future.Įstablishing a monthly budget is an essential first move toward making your short- and long-term financial goals a reality. Find a financial advisor or wealth specialist.
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