Setting and sticking to a budget is a vital step in meeting your financial goals. Whether you want to save for a big event, become financially stable or save for retirement, a budget is your best first step. If you've never created a budget before, there is no better time to start! Don't let starting your first budget intimidate you. Rather, check out these simple steps to set your first budget today!
1) Determine Your Monthly Income
Before you do anything, you need to determine how much money is coming in each month. You may be told you make, for example, $2,000 monthly, but that certainly isn’t what you bring home! After taxes, medical care and retirement options are taken out, your net income may be quite a surprise. Start with the total of what you actually bring home, include any side hustle cash or bonuses, this is your baseline. You need to know your baseline before you can determine how much you can afford to spend each month.
2) Add up the Necessities
Next, make a thorough list of your imperative costs. These are things like housing expenses, items you can't avoid month over month. Add together all of your bills including mortgage or rent, utilities, car payments, phone, TV, groceries, child care, toiletries and any other mandatory monthly expenses. Deduct this total amount from the baseline you determine during the first step.
3) Set your Goals
You now have all of your mandatory obligations out of the way. Next, you need to decide what actually matters to you. Are you saving for a larger home? A new car? Adding to your family? Maybe you need a vacation. Think about your timeline and how much money you need to set aside to meet those goals. Add what you need to save to meet your goal each month and once again, deduct that total from your baseline.
4) The Fun Stuff
Once you’ve prioritized and deducted every possible monthly expense and the amount you need to hit your goals, total up what you have left. What's left is your fun money. Reminder, be cautious and plan for unexpected events. However, once your baseline and costs are calculated the remaining amount can be used for a date night, movie, an escape from cooking with dinner to go or on a reward for the kids. Always be financially smart. If you see something that you think you want, walk away. If it stays on your mind for a few days, go get it if it is within your budget. Chances are you’ll forget about it, find something you want more or decide you’d prefer to see your bank account grow!
Tighten Up If Necessary
As you zero in on your totals and find they are running thinner than expected, there’s no need to panic! There are always ways to skim some fat, as they say. What can you trim off of your spending, even if it’s temporary? Here are some creative ways to save a bundle when you need to.
Skip the coffee shop and make a cup of joe at home. That will save you at least four dollars a day, $20 a week and at least, $80 a month! Just imagine all that savings in one cup of coffee!
Carpool with a friend every other day and save on gas. It adds up quickly!
Never throw away leftovers. Use last night's spaghetti to make a totally different spin on stuffed peppers. Or combine several nights for an easy, quick potluck meal. Even if this only gives you one “free meal“ per week you’ll save a monthly total of approximately $100!
Instead of paying a babysitter, swap the favor with a friend. They can watch your kids and then you can return the favor to drastically decreasing your night out costs.
The word budget can sound frightening but is truly an easy task when you take the time to break it down. Seeing the reality on paper makes every area clear. Simply know how much you make, how much you must spend, how much you want to save and be prepared for surprises and emergencies. Use a part of what you have left for recreation and little rays of enjoyment.
You are now on your way to being a budgeting expert and in control of your finances…which is an incredible feeling of freedom!