Creating a Budget and Sticking to the Plan
Determine How Much You Bring In
The first step in creating a budget is to determine the exact dollar amount of your monthly net income. Don’t forget to account for healthcare and 401K deductions so that you are only using the amount of money that hits your bank account each month.
Set Your Goals
Determine your primary goals and divide these aspirations into short-term and long-term initiatives. If paying off debt is your initial goal, then it is important to determine which credit card or line of credit you are going to tackle first.
Establish A Written Plan
Begin by writing down all of your monthly expenses. It is recommended to divide these expenses into two distinct categories of needs and wants. This designation will help you later down the road if you need to cut expenses. Fixed costs are simple to budget, however, you may need to approximate variable expenses in your tracking method. The easiest way to do this is to look at your historical spending over time in these categories and determine an average. This will be easier to adjust once you become established in your budgeting process.
Adjust Your Spending Habits
Now that everything is on paper, you should have a clear view on where all of your money is going each month. This will help you in making the spending adjustments needed to reach all of your financial goals. This is where the division of needs and wants expenses becomes crucial. If you find yourself needing to free up additional funds each month, the first place you should go is to the wants portion of your budget.
Check Back Often
Once you are on your way to creating a budget, it is detrimental to continue to check back often to review your budget and make the necessary adjustments to keep your financial goals on track.
Learning to create a personal budget is a step in the right direction. I highly recommend that everyone creates a budget. Budgeting your money will give you freedom in your finances.