Your budget is the lifeline for managing your expenses. Without a budget, it is harder for you to keep track of where your money is going and whether you are spending more than you earn.
Now you need to create a budget or make sure your current budget is in tip-top shape. Whether you have a spreadsheet on your computer, in your budgeting app, or in pen and paper, here's how to set up or improve your budget for the new year.
Detail Your Income
Income is the money you receive on a regular basis, like your paycheck. If you have a sideline or other money that comes in sporadically, it's good to add this here, even if it's an estimate or an average.
Added income should be calculated after taxes. For example, if you earn $ 70,000 a year, that's more than $ 5,833 a month. But chances are that the money in your bank account after tax will be much less.
Calculate your expenses
Your expenses consist of everything you spend money on. It's a good idea to have a line item for every major issue you have, such as B.:
- Payment of home price (rent or mortgage)
- Payment of additional costs (electricity, water)
- Insurance (car, health, household) [1
The best place to find out where your money is going is to check your bank and credit card statements. Your transactions describe every dollar you spend on your cards. If you are usually a strong cash user, this may be a little more work. Each bank account has monthly statements that you can review to determine how you are spending your money.
You can also sync all of your accounts with alike Mint or You Need a Budget. Categorize your transactions. It helps if you need the impetus to get started – or accountability.
Review your progress. This is your chance not only to change your money habits but also to change your mindset.
If you find that much of your money is being used for excessive spending, e.g. For example, for many meals in a restaurant or for online shopping, you now have to restructure your budget. Spend the next month tracking your progress and expenses. Now that you're money-conscious, reducing your excess spending may be a bit easier than before.
Setting Money Goals
If you've never set a budget before, setting money goals early can be a bit overwhelming while keeping your spending under control. It's okay to take one step at a time. If so, try to set your budget and financial goals later. Budgets are not limited. Rather, they change and evolve based on your income, expenses, and goals.
Here you shift your expenses. If you'd like to pay off larger credit card debt, change your line item to an amount above the minimum due. Sometimes this increases the amount due by 50, 100 or even the full balance. It all depends on what you can afford.
This is also the time to make savings or investments, if these are some of your goals. You can automatically deposit money into your savings or investment account in many accounts. As long as you have a line item in your budget, you can pay for it automatically and don't have to worry about overdrafts.
Other accounts also benefit from automatic payment. If you can, set up automatic payment for your student loans and even your credit cards so you never miss a payment. If you fall behind, your credit rating will be compromised and it could be difficult for you to borrow money later in life.
Explore different budget plans
Even if an app or method with a large budget is important, you should keep an eye on a specific budgeting plan.
Zero-based budget: With this method, you give each dollar you have a purpose. You take your monthly income and allocate something to every dollar. If there is still money left, you can decide how to use it: pay off additional debt, save for an emergency, for an upcoming vacation or for investments. At the end of each month, your bank account should have essentially zero dollars.
Cover system: This is an old school method that, like Goodbudget, has developed into an app. You set a limit for each spending category. For example, you could limit your food spending to $ 200 a month. If you have spent all the money on this category, you can no longer add. The purpose is to help you avoid unnecessary expenses. For groceries, you can add up your shopping cart in the store before checking it out, instead of grabbing what you want and checking out. This way you will not be surprised by the total amount and keep your expenses in check.
The budget for 30.50.20: This method divides your expenses into three things: your needs, wishes and debt repayment or emergency savings. Your needs will devote 50% of your budget to covering things like home and car payments, utilities, and payments for anything that requires a required amount each month. The 30% of your wishes include flexible expenses such as eating out, traveling or subscriptions. The last 20% is used to pay off debts or save for emergencies. You could use it to save for other things, like child education, investments, or big expenses.
You don't just have to stick to a budget plan. If you start with one and not jive with it, it's okay to change it. Agree to changes, especially when budgeting.