A budget is a great way to take control of your spending. It draws a line between needs and wants, so you can better evaluate those oh-so tempting impulse purchases.
Start by calculating your fixed expenses, like rent or mortgage payments and utilities. Then, add in other monthly expenses, such as groceries and entertainment.
Set Your Goals
Whether you’re trying to pay off debt, save for a house, new car or trip, or simply improve your overall financial health, budgeting is an essential skill. Creating a budget and sticking to it is easier when you have specific goals in mind, and that means setting your priorities, analyzing expenses and tracking your spending.
Start with your household’s monthly income (take-home pay). This will include your salary, freelance or contractor income, investments and any other sources of cash. Next, list your fixed expenses. These include rent or mortgage payments, insurance premiums and utilities. Finally, list your variable expenses — these are the costs that may fluctuate from month to month but still need to be budgeted for, like food and entertainment.
You can use a spreadsheet, budgeting app or even basic pen and paper to record your income and expenditures. It’s also helpful to get an accountability partner – someone encouraging enough to cheer you on but bold enough to call you out if needed.
Track Your Expenses
In order to stick with your budget and start making progress toward your goals (like paying off debt or saving for retirement) you need to know how much you’re spending. Thankfully, tracking expenses is easier than you might think.
Start by creating a list of your household’s monthly expenses. Be sure to include both fixed expenses (like rent, mortgage and car payments) as well as variable costs like food, entertainment and debt repayment.
Next, write down your household’s monthly income. This includes paychecks from your job, freelance or contractor work, investment income and anything else you earn each month. Be sure to also account for any bills that come up quarterly or yearly, such as subscription services and property taxes.
Finally, subtract your total monthly expenses from your total monthly income to determine how much you’re left with to meet your needs and save for your dreams. Remember, it’s okay to treat yourself occasionally – just be sure to track those purchases so you can make informed choices about where and how to spend your money in the future.
Make a Budget
If you want to pay down debt, save for a home or car, or work towards other financial goals, you need a budget. There are many different ways to make a budget, so you should choose one that works for your lifestyle and spending habits.
Begin by listing all your fixed expenses, including rent or mortgage, utilities and insurance. Next, list your variable expenses, which may vary from month to month, such as food (grocery and restaurant purchases), gas and entertainment. You can use a calculator to help you compile your expenses, or check bank and credit card statements to get an idea of what you spend each month.
Finally, subtract your total monthly expenses from your total monthly income to see if you have any money left over for savings or discretionary spending. If not, you may need to cut back on some of your spending or increase your income. If you do have extra money, be sure to set some aside for long-term goals!
Whether you are mapping out your financial future as a young professional or trying to figure out how to manage after a major life change, learning how to budget is one of the best decisions you can make. There are a variety of tools available, including budgeting apps and software, that can help you create a realistic budget that fits your lifestyle and income.
A budget is a tool to help you pay bills, reduce debt, save money and invest for the future. Finding a budget that works best for you will help you establish clear goals and stick with it.
Start by determining your available income (also known as net income). This is your take-home pay after deductions for taxes, insurance and retirement. Review your checkbook register, credit card statements and receipts to find all of your monthly expenses. Be sure to include variable expenses that may vary from month to month, such as food, gas and entertainment.