Setting up your budget can seem like a huge undertaking. However, there is really no reason to be panic. This is because once your budget is in place; it will be easy to see where your money is going, how much you have saved and how much you have left to spend. Just follow these seven easy steps.
Step 1 Determine Your Income. You will need to calculate how much money you will bring home each month in order to be able to meet your expenses. It is important to know exactly how much you have coming in so that you know how much you can afford to spend and save.
Step 2 Determine Your Fixed Expenses. Fixed expenses are items which will not change each month. These items can include rent, car payment, car insurance or your student loan. Savings should also be included in this category. It is important to pay yourself first. At least ten percent of your income should be deposited into savings each month. Even though your fixed expenses will not change monthly, you may be able to reduce these monthly expenses by shopping around for cheaper plans.
Step 3 Determine Your Variable Expenses. This means you will be establishing the amount that you spend every month on changing expenses. These items may include your gas, groceries, dinning out, clothing and entertainment. These are considered variable or changing, because you can scale back on how much money you spend on these items each month. You are able to set up how much you spend by calculating the last few months of your transactions. In addition, you will also need to make sure you are including seasonal expenses as you plan your budget by setting aside a bit of money each month.
Step 4 Compare Your Outgoing Expenses to Income. In an ideal world, the budget you created will match your outgoing expenses to your income. If every dollar budgeted is assigned to a specific place this is called a zero-dollar budget. If your income does not match your outgoing expenses, you may need to make adjustments and scale back on variable expenses.
Step 5 Track Your Expenses. Now that you have your budget set up, tracking the money you spend in each category will be important. This can easily be done with budgeting software or with apps on your smart phone. Having an idea of how much you have in each category at all times will help to prevent you from overspending and allow you to be successful in your budgeting.
Step 6 Make Adjustments as Needed. Making adjustments throughout the month is easy. In case of an emergency you can move money from your clothing category to help cover the cost. As you move money around make sure you do so in your budget. This is the key to making your budget work. This can help you deal with unexpected expenses and stop you from relying on your credit cards if you happen to overspend one month. If you have extra money at the end of the month, reward yourself by putting your money directly into savings.
Step 7 Evaluate Your Budget. After following your budget for a month, you may realize there is room to cut back on spending in some areas, while you may need more money in others. Tweak your budget until it works for you.
As you get better at budgeting, it is important to keep your spending, bills and savings goals in balance and in mind. As with most things, practice makes perfect. Sitting down for a few minutes each day to spend time on your budget will allow you to spend far less time on your finances, than you would if you put it all off until the end of the month. Tracking your expenses each day will also allow you to know when to stop spending. Evaluate your budget at the end of every month on top of your daily tweaks and make changes according to the expenses in the upcoming month as well. This will help you adjust your spending as your life changes and your spending increases.