How to Create a Budget

Have you been having trouble managing your finances? Is your current budget not helping you in any way at all? Do you wish that you could handle your finances better? If the answer is yes, then you should think about creating a new budget. You can do this, but you just need to put the effort in. Make sure that you are prepared for this step and the progress that will follow. This article will tell you everything you need to know about creating the perfect budget for your current situation. Creating a solid budget plan is the basic principle of good financing. With a new budget, you can learn how to manage your money, build your savings, and help you pay off your debt.

Why Is It Important to Create The Perfect Budget?

It is important to create the perfect budget, so that you can be able to manage your money. Once you are able to manage your money, you will be able to build your savings and pay off your debt. You can also improve your current situation and be able to focus on your finances. The first thing you should know is what a budget is. A budget is a monthly financial planning tool that allows you to organize how much you will spend and save. You can also track your spending habits through a budget. If you want to keep your finances in order, then you should consider creating a detailed budget each month. (If anything, you will need a budget to make sure that you do not spend too much money in one area of your finances).

How to Create the Perfect Budget

Creating a perfect budget requires the right mindset and dedication on your part. You cannot create a budget and not stick with it; it would be a waste of good pen and paper. In order to create the perfect budget, you will need to track your spending and your monthly expenses. You will also need to take into consideration your net monthly income and find out how much you saved over the years. There are many downloadable budget sheets that you can use as a template, which will make it easier for you. If all else fails and you do not know how to create a perfect budget, then you can always download an application that will do it for you.

Choose a Budget Template or Application That is Downloadable

Everyone has their own preferences when it comes to creating their own budget template. If you want to use a Microsoft Excel sheet, that is okay and a lot of people do that. There are other templates that you can download for your budget; you will find them all over the internet. It is important that you find whatever budget works for you, so that you can start working on it. You should make sure that the template is an easy one that is simple enough for you to track and understand. Look through all of your options and find out which one is best for you and get out your calculator. If you want to go old school, then you can create a budget with a pen and paper.

Collect All of Your Financial Information

Now that you have chosen a template, you need to gather all of your financial information and financial statements. This includes: your bank statements, your investment accounts, any recent utility bills you paid for, W-2s and paystubs, credit card bills, mortgage or auto loan statements, and receipts from the last three months. But, you cannot create a budget until you have all of this financial information. (The more information that you have on your financial situation, the better). Make sure you have access to all of this information about your monthly net income and your monthly expenses. To be able to create a good budget that fits your current situation, you should create a monthly average of all of the money that flows in and out of your finances.

Calculate Your Monthly Net Income

In order to calculate your monthly net income, you will need to find out how much you make per month after taxes are deducted. Your expected monthly income will help you understand how much money is flowing into your account. If you are self-employed or you have external income sources, then you should include those as well. You can record and track this total income as a monthly amount. In the case that you have a variable income that is not stable, then you might find it hard to track your net income. You can use the income from your lowest-earning month in the past year as your baseline income when you decide to create your new budget. Make sure you add all of your benefits, salaries, or side hustles.

Track Your Spending and List All of Your Expenses

After you listed all forms of income, you should start listing your monthly expenses. Your monthly expenses include everything you spend on a monthly basis. You should write down a list of all of your monthly expenses that you expect to spend in one month. This includes the following:

–          Mortgage payments

–          Rent Payment

–          Auto payments

–          Insurance of any kind

–          Groceries

–          Utilities and utility bills

–          Entertainment (Gym memberships, subscriptions)

–          Personal care

–          Eating out

–          Childcare

–          Transportation costs

–          Travel

–          Student loans

–          Savings and emergency funds

You should also include your bank statements, receipts, and credit card statements, in case you have debt. Make sure you include all of your expenses for the past three months, so that you can find how much you spend each month.

Categorize Your Expenses and Determine Your Fixed\Variable Expenses

There are two different types of expenses that you spend each month. The two different types are variable expenses and fixed expenses. Fixed expenses are necessary expenses that you plan to pay for each time with the same amount. This could include mortgage, rent payments, auto payments, internet service, or childcare. Additionally, if you pay a standard credit card payment each month, then that counts as a fixed expense. You can also add debt repayment and savings to your fixed expenses. Simply put, fixed expenses are amounts that you pay every month with the same amount.

As for variable expenses, there are expenses that change the amount from one month to another. This includes: groceries, gasoline for your car, entertainment, take-out and eating out. You should also include funds that you can use for any unexpected circumstances, especially if you do not have an emergency fund.

Adjust Your Budget Accordingly

Once you categorize your expenses and you know how much you spend or save per month, then you will start to get an idea on your financial well-being. As an example, if you make more money than you spend, then you can start saving more money to improve your current situation. Typically, you can follow the 50\30\20 budget rule; most people use this budget rule as standard practice. 50% of your budget should go to essential expenses, while 30% should go to non-essential expenses. Additionally, 20% should go towards savings and repaying your debt. On the other hand, if you spend more money than you make money, then you should adjust your new budget accordingly.

If You Have No Other Option, Download An Application

In the case that you are too lazy or too overwhelmed to create your own budget, then you can always gear towards a budget-creating application. Thankfully, there are many applications that you can choose from. One of the most common budget-creating applications is PocketGuard, which is a great application for budgeting. PocketGuard makes it simple for you to manage your personal finances and it is very user-friendly, making it easy for you to navigate. You can also try Mint, which is visually pleasing and notifies you on any suspicious financial transactions. This application groups all of your bills in one place and it is easy to organize your financial situation.

Avoid Going Into Credit Card Debt

It might sound completely impossible, but you should do your best to avoid going into credit card debt. No matter how much your credit card limit is, it is best not to fall into temptation. It is essential that you try your best to avoid going into debt whenever possible. If you plan to make a big purchase with your credit card and you do not have the money to pay it off each month, then you will spend more than you planned. In this case, you should think long and hard before you spend money on your credit card.

Plan Out Your Meals

If you go grocery shopping with an empty stomach, then you will probably spend more money than you should on food. Additionally, you will also spend more money if you constantly order takeout food. This is why you should plan out your weekly meals, so that you do not end up spending more money on food. Make sure you create a grocery list and shop once a week to track your spending. You can also go grocery shopping online, so that you avoid spontaneous purchases and temptation at the supermarket.

Think Twice Before You Make a Big Purchase

As mentioned above, you should think long and hard before you make big purchases, especially if you are using your credit card to purchase it. Instead of making a spontaneous decision and going behind on your monthly budget, you should think about the purchase you want to make. You should think about whether or not this big purchase is necessary in your daily life or if it is a non-essential expense that you can live without. Is the value of the purchase worth the financial burden that follows? If it does and it is worth it, then you can go through with the purchase.

Start Using Your New Budget

Now that you created your new budget, it is time for you to actually use it. Typically, you will find that there are people who start their new budget at the beginning of the new month. That way you can keep track of your new budget and start working on improving your financial situation.

Conclusion

In conclusion, creating a budget is a great financial tool that will improve your financial situation. If your current budget is not helping you to manage your financial situation, then you should consider creating a new one. You should keep track of your monthly expenses and your monthly income, before you decide to create a new budget. Additionally, you should make sure to gather all the financial information you have before you create a budget. That way you will have a monthly estimate of how much money goes into and out of your account.