Thursday, August 9, 2018

How to Build Your First Budget

Money, Savings, Piggy, White, Saving Money

Many young people head out on their own without the basic financial skills they need to manage their own money. This lack of budgeting knowledge can lead to poor spending habits, and over time, result in financial troubles.

Fortunately, making a budget is not that hard. You just need to commit to making the budget, know the different points that need consideration, and take the time to do it. Things like choosing a low cost renters insurance plan and making your morning coffee at home are easy ways to start saving. This post will cover the basics of making your first budget.

List All of Your Income

The first step is to determine your total monthly income. For people that work a regular job with a steady income that doesn’t vary, this will be easy. However, many work multiple jobs, and in some cases, have income that varies from month to month. If your income varies from one month to the next, you are going to want to base your budget on the lowest estimate.

Self-employment has been on the rise in the United States. If you earn some or all of your money working as an independent contractor, you need to treat this income differently. When you receive employment income, your employer deducts the taxes for you. For someone that’s self-employed, you will need to make sure to subtract your tax obligations from the income before adding it to your budget.

List Your Expenses

When you total all of your expenses, start with your necessary expenses. This includes things like rent, utilities, transportation costs, insurance, and food. Once you total your necessary expenses, you can then compare them to your overall monthly income to see how much room your have for extras.

Next, you can start looking at your discretionary expenses. This would be things like going out to eat, your entertainment budget, and purchasing things you may want but don’t necessarily need.

When it comes to discretionary expenses, it is important to remember that you do not want to spend the entire difference left over from your income after accounting for necessary purchases. You should try to leave some wiggle room to cover any unexpected expenses or increases in the costs of your necessary spending.

Establish Savings

Savings should be a part of your budgeting process. Many people neglect savings or think they can put it off until the future. However, this is a big mistake. Saving not only helps you to prepare for the future, but it can also make a big difference in the event of an emergency.

As you accumulate savings, you are not going to want to keep this money lying around the house. Instead, you will want to open a savings account. It is important to note that not all savings accounts are equal, and different accounts will work better for different types of people. Take the time to do some research and find the savings account that is right for your lifestyle.

Review Your Budget and Track Your Progress

Once you have your initial budget made, you need to review the numbers. Make sure you didn’t make any mistakes, and check to see if everything adds up. Consider whether you can manage all of your expenses and if there are any areas where you could save or cut your spending.

After your budget is made, you need to continue to monitor your income and expenses to make sure you stay on track. You could do this the old-fashioned way by continually entering income and expenses with pen and paper, or there are personal finance apps that can assist with tasks like budgeting, expense tracking and saving.

With just a few simple steps, you can set up an effective budget that helps prepare you for the future. Take some time to create your own budget and you’ll soon be living comfortably within your means.
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