Whether you’re planning for the future or just want to know what you’re currently spending money on, effective budgeting can help you get there. Budgeting is an important part of personal finance for everyone, regardless of how much money you currently have or make.
Increased financial security, less debt, and a better credit score are just some of the major financial benefits to creating and maintaining a budget, but how can you get started with effective budgeting today?
Find out below as we share our top budgeting tips with you!
Create a Monthly Budget
To achieve budgeting success, the first thing you must do is create a monthly budget. This allows you to know how much money you receive each month and how much you are spending each month.
Start by adding up all the money you have coming in each month from jobs, side work, child support, and any other source. Make sure to use your after-tax pay for any jobs because that’s the amount you can actually spend. Now you know exactly how much money you have to work within your monthly budget.
After you total your income, you need to add up all your monthly expenses. This can be intimidating if you’ve never created a budget before, but the best place to start is with your monthly bills, bank statements, and credit card statements. Create a list of everything you’re spending money on and the monthly amount you spend. Credit.org has a great list of potential expenses that you should be tracking:
- Housing – rent, mortgage
- Utilities – gas, electricity, water, sewage
- Car – car payment, gas, insurance
- Loans – student, credit card bill
- Amenities – internet, phone, monthly subscriptions
- Medical – healthcare insurance, bills
- Necessities – clothes, household products
- Groceries – food, pet food
- Entertainment – activities, gifts, dining out
- Miscellaneous – unknown expenses
Quarterly, bi-annual, and annual expenses also need to be accounted for and added to your budget. To ensure you’re saving the correct amount for these expenses, they need to be added in monthly. As an example, you pay your property taxes once per year, so divide the amount by 12 and include that in your monthly budget.
Next, you need to create a way to track your total income and total expenses. Feel free to use whatever method you are most comfortable with, whether that’s a spreadsheet or a notebook. Make a chart and list all income and expenses, then subtract your expenses from your income. After doing this, if you have money left over, that would be great for savings. If you’re in the negative, you need to increase your income or cut some expenses.
Needs vs Wants
When creating your budget, it’s important to look at each item and determine whether it’s a need or a want. Needs are things that you can’t live without, like housing, utilities, food, and clothing. Wants are things that would be great to have, but you don’t need them, such as vacations, eating out, and entertainment.
Once you’ve separated your needs from your wants, you will be able to take away from your wants to lower your expenses if needed.
Track Actual Spending
Your monthly budget is created and ready to go, and now it’s time to track your actual monthly spending. This helps ensure that you’re staying within your budget and lets you know if any changes are needed to your budget.
You can use helpful software like Mint, which is a free budget tracker and planner that does all the heavy lifting for you. Or you can review your credit card and bank statements on a monthly basis to add up your actual spending.
As the months go along, you will need to compare your actual spending to your monthly budget to determine if any adjustments are needed. For example, if your utilities are more than you expected, this will need to be changed in your monthly budget so it’s accurate.
Save for the Future
Saving money is extremely important for your future. Investing in your education, buying a house, or going on your dream vacation are all great goals for your savings.
Decide on the amount of money you want to save monthly and add it to your budget like a bill that you’re paying to your future self. This helps to ensure you will meet your savings goals.
Ready to fast-track your way to a great career?
Now that your budget is on track, you’re ready to invest in your future. Put your career on the fast track with a specialized associate degree, professional certifications, and hands-on training from PIHT. Request information now to get started today!