No one likes to feel as though they are living paycheck to paycheck. Without a proper budget however, you can easily loose sight of where your money is going after every paycheck. This is why it's important to have a budget that you follow every month, but balancing it can be difficult if you have never created one before. Use these general steps to get started:
List Income and Expenses
A good first step is to figure out exactly how much you make (your income) and how much your bills are (your expenses). This is a bit more difficult to do if you have a fluctuating income, but you can get started by averaging your last three months income. Once you've established your after-tax (take-home) income, it's time to list out all of your expenses. First, list easy-to-determine fixed expenses, such your mortgage or rent, insurance, car payment, utilities, childcare, cable/internet, phone, etc. From there, move on to expenses you have every month (but that may not be absolutely fixed). This would include things like gas and groceries. Finally, you can list out expenses that you have quarterly or yearly, and divide them by twelve to get in the habit of putting money aside for them each month (car maintenance, travel, home repairs, etc).
Determine What is Left
After listing out all that you owe each month versus all the income you make, you should be left with a sum of money that is "free" (If you aren't, you are running a deficit and you must go back to your expenses and determine where you can downsize, spend less, or make changes). From that pool of "free" money, you should set aside a certain percentage for savings, and then decide what you would like to do with rest (vacation fund, "fun money", etc).
Balance the Checkbook and Revisit
Of course, estimating costs in advance can be tough. You might have a year with higher-than-normal medical costs, or unforeseen home repairs. That's why it is so important to contribute to a savings account for "rainy day" expenses such as these. It's also important to remember that because things do change from month to month, your budget is not something set in stone. Once you get started with your budget, you can determine what works best for you and try out different strategies. For the first year or so that you try out your new budget, you may need to make regular adjustments until you find the best strategy that works for you.
A budget is not meant to hold you back. Rather, if done correctly, it can help decrease your financial stress and negative spending habits. If you need help setting a personal budget, schedule a meeting with a professional financial planner who can offer objective advice and useful strategies.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.