For many individuals or business owners, budgeting can seem like an overwhelming task. However, designing a budget isn’t as complicated as you might think. There are many reasons why you should take out time to budget – you’ll know exactly how much you’re making and spending, you can improve your credit rating, pay off and keep off debt, secure cheaper borrowing and even be fully prepared and excited about the future. Here are five quick and easy steps to becoming a budget champion.
Know your income
A surprisingly large number of people only have the faintest idea of their take-home pay. Building a great budget begins with knowing the exact amount of money coming in each month. You’ll need to combine all sources of income-after-tax to see how much cash you have to work with. It will also provide you with a framework to adjust spending, plan sustainable saving rates and prevent shortfalls.
Figure out your expenses
After you’ve found out your monthly income, you can then figure out how much money you have going out each month. Examine every single one of your expenses from last month, and add them all up. Typical expenses might include recurring bills and obligations such as: insurance, utilities and housing (rent or mortgage). Other monthly recurring bills include tuition, cell phone, subscriptions like Netflix, minimum credit card bills and student loan payments. Putting all of these together will give you a clear picture of what you’re spending each month.
Create a budget
Your budget should be based on what you ought to be spending on everything. Start by dividing up your pay cheque to cover your expenses. Keep in mind that the less you spend on the expenses you can control, the more money you’ll have to save for future use. If you prefer to go the old-fashioned route and make most payments in cash, you can use the envelope method. This involves withdrawing cash for your expenses and distributing them into separate labelled envelopes. If you’re more technology-minded, there are several online tools for budgeting you can use.
Track it all – income, spending and savings
It’s not enough to simply create a budget; you have to track it so you can see in real time how your spending and income are balancing out. Tracking your budget also helps you stick to your spending plan and keep yourself accountable for your money habits. Budget tracking can be done with a simple program like Microsoft Excel, but there are also other apps and tools that can handle it for you. Such tools can update you on your progress, which is one of the best motivators for saving. It’s also easier because you can handle your business from your phone, and if you are caught out by an unexpected cost, loan calculator tools will help you work out how much you can afford to borrow.
Save for unexpected expenses
Even when you create your budget with the most sincere intentions, sometimes expenses creep up unexpectedly – the washing mashing breaks down or a tree falls in the storm and puts a hole in the fence. By having some money saved up to handle such unplanned expenses, you can avoid taking on bad debts. You’ll also feel calm and in control of your finances.