Follow these steps to create a Budget that works for you
Every great investment plan starts with a sound budget. Before you can invest, pay down debt or take that dream vacation, a budget is the first step in making your goals a reality.
- Figure out your total income for the month.
This is your total (after tax) pay for you and (if married) your spouse. If you receive a regular paycheck, the amount you receive is probably your total income. Be sure to include everything: full-time jobs, side jobs, freelance pay, Social Security checks or any other additional income.
- List your expenses.
This includes your regular bills (mortgage, electricity, water etc.) that are due each month. After that, list your irregular bills (Insurance, taxes) that are due quarterly/yearly. After that look at your other costs such as: food, gas, entertainment etc.
- Set saving and payoff goals.
Before you can determine realistic saving and debt payoff goals you need to find out if you have extra money at the end of the month or not. You can easily find this out by subtracting the total of your expenses from your total monthly income.
Hopefully you are making more money than you are spending. If this is the case you can immediately begin setting aside money for savings and debt payoff.
If you find out that you are spending more than you are making, you will need to start cutting expenses. If you continue spending more than you make, you will have nothing to save and go farther into debt.
- Choose a budgeting plan.
A budget should cover all of your needs and some of your wants. The goal of the budget is to allow you to start saving for emergencies and the future. There are multiple budgeting plans out there. The most popular systems are the Envelope System, the Zero-Based Budget (made popular by Dave Ramsey) and the Pay Yourself First Budget.
- Track your progress.
Once you begin your budget, you will need to continually monitor your expenses. The good news is that there are many apps out there to help with this. I would recommend picking the one that is right for you and sticking to it.
- Revisit your budget when necessary.
When your income, expenses or priorities change, adjust your budget accordingly.
I hope these steps help you on your path to financial freedom. Budgeting really is an important step and has helped me tremendously.