Whether you've just moved out on your own or are having to watch what you spend for the first time, you may not know where to begin to create a budget. However, taking the time to learn can make a huge difference in your life and help you create a better future for yourself and your family. Let's take a closer look.
Consider Your Income
First things first. You need to look at how much money your family is bringing in each month. It's important to know how much you're making so you'll know how much you can spend.
Unfortunately, many people are living well above their means. This means they are spending more money than they're bringing in. This creates lots of debt and financial headaches.
Most people make a set amount each pay period. If you're in a job where your paycheck varies, you need to look at your last few months' paycheck stubs and average the totals to get a better idea of what you bring in each month.
Track Your Expenses
You next need to determine how much money is going out each month. This means tracking every bit of money you spend. You need to write it all down in a spreadsheet and then total it up at the end of the month. This can be a very eye-opening experience. However, you will learn where your money is going and why you're always broke. Do this for at least one month and then continue to do so for a few months after creating your budget.
Make a List of Expenses
Sit down and write down any expenses that have to be paid. This would including housing, electricity, water, groceries, car payment, insurance, etc. Then look back over the expenses you tracked for a month and write down the things you think you can't live without, such as going out with the girls on Friday night. Be realistic and write down everything you think you have to have. When you get done, total the expenses.
Compare Your Income to Your Expenses
If your income is smaller than your expenses, you have a problem. You need to go back over your list and cut things that aren't necessary. You do not want to rely on your credit cards to make ends meet each month. This creates lots of debt that will seem impossible to pay off.
Create Room for Savings
Your budget must include room for putting money into savings. Everyone needs an emergency account. You should also have a retirement account so that you don't have to work for the rest of your life. This may mean cutting even more from your list of expenses, but you have to look at the big picture.
Stick With Percentages
Many people find it helpful to break their income into percentages. Many financial experts recommend that your housing take up 25% or less of your monthly income. In other words, if you get paid weekly, one paycheck should be able to cover your rent or mortgage.
Another tip almost all financial experts recommend is to set a small percentage of your paycheck back for play money. This helps you stick to your budget. When all your money is going towards bills or living expenses, you'll quickly get tired of not having money to spend on fun things. Make sure to pay yourself.
It's not hard to create a budget. You just need to take a bit of time and be realistic about what you can afford. However, it can help ensure that you have money for the future and still have money for fun.