How To Budget Your Finances The Right Way

How To Budget Your Finances The Right Way

METHODS

 

 

 

Creating a stable budget is the first step towards taking back control of your financial life and making your wealth work for you. It allows one to do away with all their debts, save money and feel at ease with life. Budgeting does not always have to mean spending less; it may just involve putting your money on the important things first before treating yourself.This way, you can be in control of what you spend each month and achieve your goals in time.

Creating a Budget

 

 

 

1

Make a budgeting spreadsheet. It could be done by using Google Sheets or Excel. Ensure that you display all your expenses and income during the year in order to identify any places where you could spend more prudently through creating a spreadsheet that clearly indicates this information.

The 12 months of the year should be put on the top row.

 

2

Determine how much you make each month after taxes are taken out. Net income refers to the amount that remains after tax has been deducted from your monthly earning. For employees under constant salary payment plans, this figure is usually found in paystubs.

If you work an hourly position, your income may vary from month to month, but you can find an average amount by looking at your last 3 to 4 paystubs.

  • If you are a freelance worker or self-employed, you may be receiving your entire income without taxes taken out. Try to set aside about 20% of your income to pay your taxes at the end of the year.

3

Fixed expenses are items for which you have to pay the same amount monthly.  These include rent, mortgages, some utilities, student loan repayments, or car payments.  Put a label for each expense in the left-most column of your spreadsheet and write how much it costs in each box below its corresponding month.

 

4. Write down your variable expenses. Variable expenses are those that may vary in amounts from one month to another. Often, they are things we can reduce our spending on when we want to save money.Add these labels to your fixed expenses, then put them down per month that you can afford.

 

5

Compare your expenses to your income. To make a budget for every month, calculate the amount of money that is spent on fixed and variable costs per month. Subtract this figure from your monthly income, and the remaining amount is referred to as disposable income or cash at hand after all bills have been paid off by the end of a particular period of time.When there is no money or it shows a negative figure, you probably spend more than what you earn each month.

  • Method 2: Step 1: Use Your Budget.
    Pay all your costs first. Before you get into saving mode or start applying money towards a certain goal, the most important thing that you need to do is ensure that all your bills are paid. Every month, ensure that the majority of your income goes toward your bills, which include rent and food.However, it makes no sense to save money while there are still debts owing.

    It is good to aim at achieving 50% of your income for living expenses and necessities.

     

    1

     

    On the other hand, channel excess funds to a particular objective. The remaining amount can be put towards something you want to achieve by the end of the month. It could be savings, repayment of loans, or even paying for education for children through college funds. Ensure that you know what you are going to do with those extra dollars in order to make a plan for them.

    For example, every month, divide your surplus among debt service and savings accounts.

    You may also allow yourself to spend money or simply invest some of your additional income each month.

 

If you calculate how much money you have left over at the end of the month and it isn’t much, you may need to adjust your spending habits. Try spending less on optional items, like clothing, entertainment, and going out to eat.

  • Not everyone is in a position to cut back on spending right now, and that’s okay. Eating food, paying your bills, and buying clothes are all necessary to live life, and you shouldn’t feel bad about that.
  • Try to be realistic about what you can cut back on. It’s easy to say that you can cut your entertainment budget in half, but it might not be fun to decline going out with your friends every time they ask.
  • Around 30% of your income should be spent on things you want but don’t need.

 

 Now that you know how much money you receive and spend each month, you can set goals for your spending habits. Short-term goals are things that you can achieve within 12 months, and they should be specific and actionable. For example:

  • Put 5% of each paycheck in a savings account.
  • Pay off credit card balances in 12 months.

 

 Long-term goals are your budgeting goals that might take a little longer than 1 year to achieve. They should also be specific and actionable, and you can think further ahead into the future.

 

 The best way to track how well you’re doing is to jot a note down every time you spend money. You can do this on a piece of paper, a note on your phone, or on a spreadsheet on the computer—whatever’s easiest. That way, you can see where your money is going and what you may be able to cut back on in the future.

  • Be really specific when you write down what you spent money on so you don’t forget it. For example, you could write, “$22.95 on a new watch for Mom’s birthday.”

3.

 If you realize that you’re overspending, you may be able to make small changes to your habits that don’t affect your life much at all. For example, try buying in bulk at the grocery store instead of going for name-brand items. Or, make your coffee at home instead of buying one from a coffee shop. Small changes like this can add up over time, so keep at it![17]

  • Try packing your lunch instead of buying one, exercising outside instead of at the gym, subscribing to an online newspaper instead of buying one, or getting your books from the library instead of buying them brand new.
Method3

Practicing Good Budgeting Habits

 

 Your income or expenses may change from month to month, and it’s important to keep your budget updated. Be sure to keep track of your total spending and savings, and adjust your expenses if you need to.

  • At the beginning of each month, take a look at last month’s budget and see how you did. This can help you make adjustments for the future.
  • If you got a pay raise or paid off a debt, this can also affect your budget.

1

Spreadsheets are great, but it can be tough to keep track of your information on your own. If you want to make your budget run a little smoother, try updating your information on a budgeting website or app. That way, you’ll already have a budgeting template, and you can set reminders on the website to upload your spending habits so you don’t forget.

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Your money has to work for you, not the other way around. You don’t want to feel like a slave to your budget or to money in general, so it’s important to allow yourself a small treat every month that won’t break your budget.

  • Take a look at your budget and decide what you can afford to splurge on. Some months you might be able to afford a new pair of shoes; other months you might go for a latte or a new notebook.

 If you use credit cards or have student loan debt, you should try to pay off at least the minimum amount every month to avoid high interest rates. If you cannot pay off the current balances, prioritize paying them off within a reasonable time period so that you can get to zero balances.

  • If you can afford to put more money toward your debt each month, you should prioritize that. Paying the minimum payment each month can take a long time to pay off your debt, and you can pay a ton of money in interest rates.

 

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