Whether you’re trying to pay down debt or save to purchase your first home, every financial goal needs a budget. When creating a budget, many families underestimate their spending or overestimate their income. Miscalculations like these will ultimately lead to budget failure. To make your financial goals a reality, follow these tips for creating a budget you can succeed with.
Calculate Income and Expenses
The very first step of creating a budget should be to calculate your monthly household income, and all of your monthly expenses. When calculating your total household income, make sure you’re considering your net income instead of your gross income. You’ll also want to include any other incoming funds, such as alimony, child support, rental income, etc.
When calculating your total expenses, start with reoccurring bills such as mortgage or rent, utilities, credit cards and loans, and insurance payments. Next, you’ll want to calculate other expenses, such as groceries, gas, gym memberships, and eating out. To get a more accurate picture of how much you’re really spending in each category, refer to your monthly bank statements. Don’t forget to account for unexpected expenses that may arise, such as home or car repairs.
Now, it’s time to subtract your total monthly expenses from your total monthly income to see where you stand.
Adjust Your Budget as Needed
If you’re spending more than you’re making, or near to it, then it’s time to make some changes. Take a long hard look at your monthly expenses to determine what payments can be reduced or cut out completely. Ideally, you’ll want to cut enough so that you can place 10-20% of your income into your savings account.
That daily $5 coffee shop espresso is an easy thing to cut out; just make your coffee at home and you could be saving up to $150 a month. Many households are cutting the cord when it comes to cable now that there are a variety of affordable alternatives available. Opting for a service such as Netflix (as low as $11.99/month) or Hulu (as low as $7.99/month) instead of cable could save you hundreds of dollars a month. Another easy way to cut expenses is to limit how often you’re eating out, and to opt for budget-friendly or even free weekend activities.
If you’re making more money than you’re spending, then you’re on the right track! Just make sure you’re putting those extra funds to work by paying down debt or building up your savings.
Stay on Track
To avoid falling off the budget wagon, it’s important to track your spending daily. While that may seem like a daunting task, there are plenty of free apps that can help you stay on track. Download an app, such as Mint, that can track all of your expenses, set savings goals, and even alert you when you’re approaching your spending limit for specific categories. Tracking your progress will keep you motivated, and help you make more conscious spending decisions on a daily basis.
Now that you’ve created a budget, be realistic when it comes to expectations. Reaching your financial goals won’t happen overnight, so be patient. Do your best to stick to your budget and financial success will find you.
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