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How to Create a Budget: 7 Steps for Financial Planning

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7 steps to a budget made easy

The cash envelopes typically contain money for groceries, gas, eating out, essentials, and play money. Regardless of your choice, it’s essential to contribute to retirement accounts. An effective budget can enable you to make the maximum contribution towards your retirement funds and help ensure you’re taken care of in the future. If you create a budget, you may also have an easier time covering student loans, car payments, and insurance premiums.

Budgeting for Beginners: A Step-by-Step Guide

One of the biggest mistakes is forgetting a category, and then, being short on money for the month. Make sure to account for all your expenses—even ones you think only amount to a few dollars. Forgetting a bunch of smaller expenses makes it harder to understand where your money went at the end of the month. To figure out how much you have available to spend each month, you need to determine your after-tax income. This is the amount that comes in on your paychecks and that you have available to spend.

Ways to Save Money on a Tight Budget

Food, shelter, and transportation, being at the top of the list. You can use a debt snowball calculator to see the best way to do this. It doesn’t matter if you make a lot or a little, your money will not work for you, if you don’t tell it where to go. This will take some time to figure out which works best for you and your budget. For instance, if the insurance bill is higher or the kids are growing, then those 7 steps to a budget made easy categories need to be increased.

Plan for Discretionary Expenses

  • Another thing you can do is take a look at bills that could be negotiable or switched for a better price.
  • This balance tells you how well you’re currently managing your money, and gives you a baseline to help you plan for the future.
  • It’s a lot easier to stick to your budget when you make things simple.
  • It’s a proven fact that money fights and money problems (one of the top reasons for divorce) happen less when everything is combined.

Creating a budget doesn’t have to be scary or overly restrictive. It knows that your life is ever changing and helps you prepare for that reality. The only requirement of a good budget is that it helps you get conscious of your spending — and live within your means. The content on DollarSprout includes links to our advertising partners. In today’s world, much of our lives are lived online.

Checking in every week will allow you to make course corrections before things get too far off track. Make note, if you’re budgeting with a spouse, you both need to be involved in the review. Having one person in a relationship dictating the budget isn’t a recipe for long-term success. An employer 401(k) match is your company paying you to save. It’s an instant return on your retirement savings, and you should never leave that money on the table.

Using all of the money in the month for a category is called a zero-based budget. But for now, look at your budget and decided what sinking funds you want to save for on a month to month basis and which you can cash flow when they are due. Pull up your bank account or pay stubs and figure out how much each paycheck is. Jot down the amounts and make a total of all your income for the month. The hardest part about making a budget is getting started.

How to Make a Budget: Easy Breezy 6-Step Guide

For instance, we used to budget our food into different categories, such as entertaining, kids food, lunches, regular staples, meat. When we started, I thought we were pretty good on certain things, and I was so very, very wrong. For instance, I can go back to see what I spent on food in January 2013 and see how it compares to other months and years. It’s really interesting when you can go back and see. This is usually the hardest part because until now, you may have no idea how much you spend on different things. When it comes to budgeting, you need to get your head in the right place.

The first step of budgeting is determining how much money you make each month. If you have one salaried job, you’ll find this information on your paystub—it’s the amount you take home per paycheck. If you get paid on 15th and 30th of each month, you simply multiply your paycheck amount by two. If you get paid biweekly, you’ll want to multiply your paycheck amount by 26 and then divide by 12.

You plan for how much you will spend in the future. Answer the following questions truthfully, based on what you do today. Ask yourself how much effort do you put in managing your own money?

  • A monthly budget is a plan for balancing your income and expenses to achieve long-term financial goals.
  • Personally, my experience with them has been nothing short of incredible.
  • However, if you work as a freelancer, have side hustles, earn hourly pay or overtime or rely on tips or commission, your monthly income is a little more difficult to calculate.

So yes, this process will feel different in the beginning. The very first time the first person wore shoes it felt funny. Another option is Mint, it’s free but it’s limited in it’s capabilities.

Saving up a slush fund to help offset moments of overspending can help. You can use budgeting apps, spreadsheets, or even note expenses in a notebook. The key is to record every purchase, no matter how small. Regularly reviewing your spending helps you identify problem areas and adjust as needed. Now that you understand your spending patterns, you can develop a plan to support a better financial future. For example, an aspiring homeowner who wants to make a $50,000 down payment would have to save $1,042 per month for four years to make the down payment.

Even $5 of intentionality can help avoid overdrafts or late fees, and make sure you’re not spending more than you’re bringing in. Your car insurance is another area with huge savings potential. But shopping around for a new policy can be a lot of work. This tool from The Penny Hoarder gathers all your best options together in one place, so you don’t have to waste time browsing endless insurance sites for a better deal. On average, drivers who shop around tend to save $860 per year or more. You should include any net income in this, so money from your full-time job, side hustles, child support, etc.

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