Budgeting is a plan you put together on how to spend your money. This is important because it allows you to see how much money you are spending a month and how much extra you have to do other things such as traveling. Once you put a plan together you can see where you need to cut costs and focus on the things that are important to you. This is the absolute best thing to do to be able to make sure you have enough money for the things you need and keeps you from going in debt!
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Why do you want to budget?
Budgeting is very important but you need to first know why you plan to build a budget so that you can be sure to complete your goals. Whether it is to break your paycheck to paycheck cycle, getting out of debt, or reducing your overspending problem. All of these are great reasons to start. University of Maryland did a research that shows creating a budget makes you more likely to achieve your financial goals because it discourages cheating and helps with motivation.
Did you know?
- Gallup did a poll and found that 1 in 3 Americans actually prepare a detailed household budget and 30% prepare a long-term financial plan with investment goals.
- CPA financial planners conducted a survey and 41% found that their client’s top concern about retirement is running out of money.
Ways to start your budget
To really get started with your budget, you need to get a better understanding of your expenses. To do this you must track your spending. It is recommended to track expenses by month. One good way to track monthly expense’s is by creating an excel spreadsheet. If you need assistance with a spreadsheet you can download a free version at MoneyUnder30. This free spreadsheet allows you to enter all your expenses by month. Another good way to track expenses is by using an app such as Mint. You have to link your bank accounts/credit cards and it will show you your monthly spending. It will also recommend credit cards, loans, and ways to save. I recommend creating a spreadsheet and using an app.
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Something we tend to forget about while creating our budgets is irregular expenses that occur throughout the year such as holidays, birthdays, car maintenance, vacations, doctor visits, etc. It is best to include a monthly savings just for irregular expenses. This will help you save and keep you from going in debt trying to pay for these expenses. A good way to figure out about how much you need to save each month is by looking at your past bank statements and seeing about how much you need for each expense.
The main reason we make a budget is to make sure we are making the best of our income. Therefore, the last thing you need to do is add up all of your income and compare it to you expense list. Your income can include: wage income, child support, alimony, social security, side jobs, investments, etc. Once you compare your income to expenses, you will then see where you need to cut costs and how you can save/spend wisely.
What are your financial goals? Are you saving for a vacation? Or maybe a down payment on a house? Saving for retirement? College? Christmas? If you are goals are really big goals, then you shouldn’t get discouraged. Do your research and come up with an amount. Let’s say you want to have a down payment of $20,000 for a house in the next 5 years. That is $4,000 a year, which is $333 a month. The more specific you are with your goals, the easier it is to achieve it.
Remember to make your goals realistic, check your budget each month, and achieve your money goals!