How to Create a Budget That Works for You
Do you feel like your finances are out of control? Does it seem like there’s never enough money to cover all your expenses? Creating a budget that works for you is one of the best ways to get your finances on track and achieve your financial goals.
A budget is simply a plan for how you will spend and save your money. Budgeting gives you control over your money instead of your money controlling you. When you create a budget, you’re able to align your spending with your values and reach your financial goals.
The benefits of budgeting include reducing debt, saving money, and reducing stress about finances. With a budget, you can identify wasteful spending and make adjustments to get your finances in order. Read on to learn how to create a budget that works for you.
Gather Your Financial Information
The first step in creating a workable budget is gathering all of your financial information in one place. Make a list of all of your income sources, including your salary, interest income, and any other sources of money coming in.
Next, list out all of your expenses. Be sure to include regular monthly expenses like rent, car payments, groceries, and utilities. Also factor in irregular expenses that occur quarterly, annually, or occasionally like car maintenance, gifts, and vacations.
Once you have listed your income and expenses, categorize each expense into groups like housing, transportation, food, etc. Finally, calculate your total monthly income and expenses. This financial overview is crucial for creating your budget.
Set Your Financial Goals
Now that you have your financial information laid out, think about your financial goals. What do you want to achieve with your money? Common financial goals include saving up for a down payment on a house, paying down debt, saving for retirement, or saving for a dream vacation.
Defining your goals will help you prioritize how to allocate your money in your budget. If paying off credit card debt is your top priority, you’ll want to devote more money in your budget to credit card payments.
Create a Budget Template
Next, choose a budget template that works for you. You can find many budget templates online and in financial planning books. The template should have categories for your income, expenses, and financial goals. Look for a template that’s easy to use and understand.
Many budgeting apps like Mint and You Need A Budget also have great budget templates. Consider using an app since they automate a lot of the number-crunching for you.
Enter Your Financial Information
Now it’s time to enter your income, expenses, and financial goals into your budget template. Put each income source and expense into the appropriate category. Include expenses that occur regularly as well as irregular expenses.
Once all your financial information is entered, subtract your expenses from your income to calculate your monthly net income. See if you have any money left over to put towards your financial goals after covering expenses.
Make Adjustments as Needed
Examine your completed budget to see if you need to make any changes. If your expenses exceed your income, you’ll need to make some budget cuts. Look for areas where you can reduce spending like dining out, entertainment, or other discretionary expenses.
Consider ways to boost your income like asking for a raise at work, starting a side hustle, or selling unused items around your home. Make adjustments in your budget until your income exceeds expenses.
Review and Update Regularly
Your income and expenses likely change over time, so it’s important to review and update your budget on a regular basis. Review your budget at least once a month to make sure you’re on track. Celebrate any budget wins like paying off a credit card!
Creating a budget takes effort but it’s one of the best things you can do to take control of your money. Follow the steps above to make a budget that works for your needs and helps you achieve your financial goals. What budgeting tips would you add? Let me know in the comments!