Do you need help creating a budget to manage your money?
Do you find it challenging to track your money going in and your money going out?
A budget is simply a plan for your money. A budget analyzes your financial condition. It can help you reduce spending, save money, identify shortages and make sound money decisions. Budgets allow you to control your money instead of your money controlling you. Budgets create financial stability, ensuring the right amount of money comes in at the right time and the proper amount of money goes out at the right time.
You can create a budget in five easy steps to help you control your money, become financially stable, and achieve financial freedom.
1. Financial goals.
The first step in making a budget to manage your money is creating your financial goals. Financial goals can be an encouragement for you to remain on your budget. Budgets can be challenging, so your goals will give you the motivation to stay on track.
What do you want to do with your money?
Do you need to increase your savings account?
Do you need to reduce your expenses?
Do you have money left after paying your living expenses?
Make your goals clear, measurable, and practical.
For examples:
Increase my retirement contribution by 5% this year
Reduce dining out spending to $50.00 a month for the next six months
Open a savings account for an emergency fund by the end of this year
Increase credit card minimum payment by 50% each month
2. Budget Method
The second step is selecting a budget method that fits your financial situation. Your financial goals can help you choose a budget method. There are many different budget goals, so your reasons for your budget are essential in determining your budget method.
Read 5 Budget Methods for Managing Your Money for more information about selecting a budget method. You will only learn about five budget techniques in this article; however, you can find more when searching budget methods.
You can continue with the following steps regardless of your chosen budget method.
3. Income and Expenses
The third step is to write down all of your income and expenses. Ask yourself how much money you have coming in (and from where) and how much is going out (and to where). After taxes, how much compensation do you receive from your employer, side hustle, or passive income? How much do you spend on groceries, rent/mortgage, coffee, cell phone, out-of-pocket medical expenses, and other essential living expenses?
A personal financial statement worksheet can guide you through writing down all your income and expenses. You should have a detailed view of your financial situation. Use your last three months' bank statements to get the estimates you need to fill out your personal financial statement.
4. Create Your Categories
1. You have established your financial goals.
2. You have an idea of or have selected your budget method.
3. You have used the personal financial statement to write down your income and expenses.
In step four, you create categories to track your income and expenses. Categories organize your money coming in and going out to better track it. You should avoid creating very specific categories. Try to create broad categories that will fit more than one of your expenses.
For example, you don't need a category for each restaurant, maybe a dining out or eating out category instead. This dining out and eating out category includes restaurants, fast food, coffee, or bakeries.
If you have more than one income, a category for each income source would be beneficial in tracking your income.
The categories you create should be unique to how you spend and earn your money.
Make the categories your own.
Here are some categories to get you started:
Housing
Personal Care
Food
Utilities
Transportation
Healthcare
5. Estimating Earnings and Expenses
How much will you earn or spend in a month?
In step five, you need to estimate how much you will receive and spend monthly.
How much is your net income each month?
How much do you spend each month on groceries?
How many times do you fill up your car?
How much is your cell phone bill each month?
If you use the personal financial statement, you know how much you earned and spent in the last three months to make some predictions about your money.
If you did not use the personal financial statement in step three, you should review the last three months of your bank statements to determine estimates for each category. You must be honest about your income and especially your spending.
Take the time and have the patience to learn how your money performs.
6. Track your money
In step six, you need to pick a document to track your money.
Most personal finance applications have a budget feature, including categories, but you need to input your estimations.
You can find personal finance planners online that help you record and keep track of your money.
Google and Excel spreadsheets have personal finance templates to help track your money.
Bank reconciliation is an excellent way to track your money each month.
You can hire a bookkeeper to help you create your budget or track your money.
At the end of each month, schedule time to review your bank statements to notice if your actual amounts are close to your predictions in step 5. It is essential to carefully review your monthly budget to see if your estimates came close to your actual income and expenses. If you see considerable differences in your predictions and actual amounts, you may need to adjust your amounts from step 5.
With practice, you will become experienced in predicting future income and expenses without any significant financial changes.
Budgets will give you a complete overview of your financial situation to help you make better decisions and achieve your financial goals. The beginning of creating a budget can be challenging because you are putting your whole financial life on paper. It is easy to ignore your spending habits in the dailiness of life.
Managing money takes time and patience to enjoy the long-term benefits.
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