How to Budget
Do you hear the word budget and cringe? You aren’t alone, most people do. But it’s not as bad as you think. In fact, budgeting can be empowering. It is a plan for your money – it makes you feel more in control.
Now let’s get down to how to budget.
What are your Expenses?
First, figure out your expenses. Pull your bank statements from the last few months and if you use credit cards pull them too.
Categorize your spending so you can see where you overspend or can cut back. Break it down by housing expenses, transportation expenses, food, entertainment, etc. Get as specific as you can here because this is where budgeting really helps.
What is your Income?
Now how much do you bring in each month? This is your after-tax income – the money that hits your bank account after all taxes, insurance, and 401K deductions.
Think of all income. Do you have any side hustles or part-time income? Do you receive work bonuses or commission? Write it all down.
Create your Budget
Now it’s the fun part – creating the budget. You have a few options. Here are my favorites:• 50/30/20 budget – Budget 50% of your income for your fixed (necessary) expenses, 30% for variable (unnecessary) expenses and 20% for savings and debt payoff. Work your expenses into these amounts. Do they fit? If not, find ways to cut back and/or bring in more money, possibly by taking on a side hustle.• Zero-based budget – With this budget, every dollar you bring in gets a ‘job.’ You should have $0 left in your spend account when you’re done budgeting, if you’ve done your job right. This doesn’t mean you spent every dollar. Instead, it means you paid your bills, saved, and paid off debt.• Envelope budget – If you like a cash lifestyle, focus on the envelope budget. You create envelopes for each category, filling each one with the month’s budget. Once you spend the money in that envelope, you are done spending in that category.
A Few Important Things about Budgeting1. Budgeting is flexible. Don’t beat yourself up if you make mistakes. If you overspend or underbudget, it’s okay. Learn from your mistake and make changes for the next month.2. You can change budgeting programs. If you don’t like one program, try another. There’s nothing set in stone about any of it. 3. Budget is empowering. You may feel restricted because you can’t buy something or you have to think twice about it, but in the end, you’ll come out ahead and will feel better about yourself.
If you don’t budget, the time to start is now. Pick a method or just use pen and paper and keep track of your expenses. The key is to track every penny that comes in and out. It’s the only way to tell what you’re spending, where you need to change, and how you can save for the future, whether a short-term goal or something as far away as retirement.