budget

 

Fewer than a third of Americans create a budget every month. Is it any wonder so many people live paycheck-to-paycheck?

Unfortunately, not many schools teach students about personal finance so they never learn good financial habits like personal budgeting.

Making a personal budget will help you see where you’re spending your money, find things that you can cut back on, and use your money more intentionally.

Let’s look at some easy-to-follow tips to learn how to make a budget and stick to it.

Simple Steps for Making a Personal Budget

Your personal budget plans don’t have to be complicated. You don’t need to spend a bunch of money on special software or hire a financial planner to help. A simple spreadsheet or old-fashioned notebook is all you need to get started.

Once you decide how to keep a budget, the first step is to make a list of all your fixed expenses. This includes monthly costs like rent or mortgage payments, child care costs, utilities, and so on. Don’t include discretionary things at this point, only the costs you have to pay.

Next, make a list of all your income sources so you see how much you have to work with every month. Deduct the total fixed costs from the total income and what’s left can go toward discretionary expenses like entertainment.

Don’t Forget to Pay Yourself

Many people overlook one of the most important items in their personal budget plans – paying themselves.

Putting money aside for saving every month should be part of every budget. How much you save depends on how much you have to work with after your fixed monthly expenses but once you have the figure, you should treat saving as one of those fixed costs.

Polls show that two-thirds of Americans would have trouble covering $1,000 if an emergency came up. Putting something aside every month can help you avoid this problem.

Automate as Much as Possible

When you earn money, it probably gets deposited into your bank account automatically. Your spending should happen the same way, as much as possible.

You can automate most payments through your bank account so you don’t have to think about them. Payments that vary from month-to-month can’t always be fully automated but any fixed expenses from one month to the next should have automatic payments set up.

On top of being less work, it also helps to avoid late payment fees since there’s no chance you’ll get busy or overlook a payment before it’s due.

This applies to your savings as well. If the money gets transferred into a savings account automatically, there’s less chance you’ll spend it instead of putting it away. If it happens on the same day you get paid, you probably won’t even miss it.

Budgeting Doesn’t Have to Be Restrictive

Many people avoid making a personal budget because they think it will limit how they can spend their money. This is true to a point, but all it’s really doing is helping you see where your money is actually going. If you don’t track it, it’s easy to spend without much thought.

If a budget feels like it’s holding you back, build in some wiggle room. Leave some “fun” money that you can spend on anything you want. Or even better, treat yourself to something when you reach your goals. Maybe a nice dinner out when you save your first $500, for example.

And don’t feel like you need to wait for some “special” date to start, like January 1st. You can take control of your finances any time so get started today.