- How to Make a Good Budget: A Step-by-Step Guide
- The 50-30-20 Rule for the Budget
- How to Make Sure Your Budget Works
When you make a budget, you try to spend as little money as possible. The majority of us ultimately add “budget” to our list of words we utterly despise. In reality, a budget is just a guide for how to spend your money. Want to know how to make a good budget and reach your financial goals? So, you’re right where you need to be!
You need a good financial plan if you want to pay your bills and debts, have some fun, and still put some money into your savings account.
A budget is a written plan that shows income and spending for a certain amount of time. It shows you if the way you spend money matches the things that are important to you. When you start making a budget, you may find that some of your daily or monthly expenses aren’t as important as you thought.
Think about how much money you have now before you start. It’s best to know what you want to get done in a certain amount of time. It could happen next month or in a few years.
How to Make a Good Budget: A Step-by-Step Guide
Here is a step-by-step guide to making a good budget:
Step 1: Figure out what your net income is.
The first step in making a budget is to know exactly how much money you make. Be as exact as you can when making a guess. Get your financial reports together to get a clear picture of how much money you make. Remember that we’re talking about your income after taxes, not your total salary.
If you get a paycheck every two weeks, it’s easy to figure out your net income. If you have payments taken out of your account automatically, you can add them back and add the costs to your budget later. These deductions include payments for insurance, savings, and 401(k) plans.
Deduct all taxes and business costs from any side jobs or other sources of income. Make sure to use the lowest monthly income you’ve ever had in the last year, just to be safe.
Step 2: Write down all of your monthly costs.
Make a list of all the bills you expect to pay this month. Most of them have to do with housing, food, transportation, health care, and utilities. Include any minimum loan payments so that you can save the rest of the money.
Check your financial statements to get an accurate list of all your monthly expenses. These include recent bank statements, credit card bills, utility bills, and receipts. The more information you have, the easier it is to make a good budget.
Step 3: Figure out what your monthly fixed and variable costs are.
Start by making a list of all your monthly fixed costs. Even though it’s not likely to cut back on these, it’s important to know how much money they cost each month for a good budget. The following are examples of fixed monthly costs:
- Student loans
- Basic utilities
- Mortgage or rent
- Hospital costs
- Car payments
Next, you need to figure out what your variable costs are. This kind of cost can change from month to month. Here, you can find something you don’t need a lot of and cut down on how much you use. You could also take it out of your budget. Some examples of variable costs are:
- Car maintenance
Step 4: Figure out how much you make and spend each month.
Find the difference between what you earn and what you spend. If what you spend is less than what you make, you are in good shape. You can easily put more of your money into investments that make sense and savings for retirement. Use the extra money to pay off any debts you have.
When your costs are more than what you make, you are overspending. If your calculations show that this is the case, you have two choices. Either you need to make more money or change how you spend it. Less work is needed to go along with a cut in spending.
Step 5: Adjust your spending.
If you spend more than you earn or don’t like what you’re spending on, you should make some changes. Most of us spend money on fun things that we don’t need. These are the costs that waste the most money. Some of them are movies, snacks, new clothes, trips, and eating out.
You could take a taxi home, but you could also walk. Is there a way to get in shape without going to the gym? Try having fun with your pet instead of going to the club.
If you said yes to any of those questions, you should get rid of those costs that aren’t necessary. Find out what you can do without for a while or what you can get rid of to save money. If you don’t include them in your budget, you can use the money for something else, save more, or pay off your debts.
The 50-30-20 Rule for the Budget
Use up to 50% of your income to pay for things you need. As for the things you don’t need, also called “wants,” only give yourself 30 percent. If your monthly needs take up more than half of your income, you should reduce the “wants” section.
Make sure you leave some room for costs you might have forgotten. This method can also help if one of your costs ends up being bigger than you thought. You can choose to spend the money if your budget doesn’t change for any reason.
The remaining 20% is used to save money and pay off debts. You might have to choose between the two. Choose the choice that will help you reach the most important goals.
How to Make Sure Your Budget Works
It’s important to look at your budget every now and then to make sure you’re on the right track. Change your budget when you get a new source of income, reach one of your goals, or when your spending goes up for any other reason.
Remember that these aren’t the only reasons why. Comparisons with family, friends, or other people whose goals are similar to yours can also make you want to change your budget.
You now know how to make a budget that will work. So you should get going!