How to Budget the Right Way
A solid financial plan starts with a smart budget. Whether you are saving for the future, for a dream vacation, or paying off debt, it all starts with budgeting your money the right way. Setting up a budget that is realistic is the key to accomplishing any one of these goals or all of them. Following these simple steps when creating a budget will help your financial plan to be successful.
Add Up Your Expenses
Take the time to add up what you are spending each month. Begin this process by gathering bank statements that include bill payments, ATM withdraws, and debit-card purchases, as well as any cash receipts that you have on hand. If you find it difficult to gather the cash receipts you’ve received, then take the time to consider your daily routine. If you typically purchase a coffee and lunch during the week, but the amounts vary, estimate the charges. It is always better to estimate high so that you can add a cushion into your budget. Be sure to include everything, even the unexpected, to get the most accurate account of your monthly spending. While adding an unexpected expense is like a shot in the dark, because you have no idea what that expense will be, adding an extra 10 to 15 percent into your calculation should cover it. That means if your monthly expenses total $2,000 a month, add another $200 to $300 just to be safe.
Consider Your Income When Creating a Budget
After you have calculated your monthly expenses, it’s time to figure out your actual monthly income. That income will include your salary, plus any other funds you collect throughout the year such as any reimbursements, child support, alimony, rental income, and even cash gifts or bonuses that are expected. Consider all avenues of income that are received when determining your income.
Set Financial Goals
When determining your financial goals, it is important to know what you are working with. By subtracting your monthly expenses from your actual income, it will help you to find out if you have a budget shortfall or overage. If your expenses are less than you make, that is a great start to creating a strong budget. If you’re spending more than you make, then it is time to cut some of your expenses. The best way to find out where you can make some cuts is by tracking your spending.
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Track Your Spending
Taking the time to document your spending is the best way to stick to your budget. There are several budgeting apps that can assist you in tracking your expenses with just the click of a button. It doesn’t have to be difficult. Having immediate access with your smartphone can make the process much easier. You no longer need to save receipts and manually enter expenses in a ledger. Uploading a photo of your receipt into the budgeting app you have on your phone can track your spending and adjust any changes to your budget in just seconds.
Be Realistic with Your Budget
While sticking to a budget is essential to achieving your financial goals, stepping outside of that budget every once and a while may help you to stay focused. Feeling as though you have nothing to look forward to can make budgeting even more difficult. Treating yourself occasionally can make budgeting a more positive experience, as long as you get right back on track.
Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.