Whether you are a recent college graduate or are just now getting out on your own, knowing how to create a budget can be beneficial. Budgeting can seem like an overwhelming process, but it is very straightforward. The following are four easy steps to help you get started with making a budget:
Calculate Your Income
The first thing you need to know is how much money you have coming in. This may seem easy, but you should be thoughtful when considering your income. It not only includes your take-home pay from your job but additional income sources as well. This can include money from alimony or child support, cash from side hustles, and anything else that brings in regular cash flow. This will help you determine what you can afford when it comes to living expenses, savings, and so on.
Calculate Your Monthly Expenses
Next, you need to determine how much money you are spending and what you are spending it on each month. Expenses will generally fall into one of two categories. You will have fixed expenses that do not vary from month to month, such as your rent or car payment. You will also have variable expenses, which may include things that will fluctuate in costs, such as your energy bill and insurance payments. This will also include entertainment, food, clothing, and travel expenses. If you are noticing that you are falling short each month, this is the category that will be the easiest to restructure.
Lay It All Out
Once you know how much money you have and what you are spending it on, it is time to get it all on paper to see if the numbers balance. You will need to compare your income and expenses. If your expenses are higher than your income, you will need to research further to see where your money is going and how you can decrease your spending.
Make a detailed list of all your expenses and decide how much you want to spend in each category based on how much money you have each month. Your fixed expenses will be the easiest since they do not change. However, you will need to categorize each of your variable expenses and assign an appropriate amount of money to each. You will need to budget for food, clothing, gas, cable television, and so on.
If you notice that there are any shortfalls in your budget, you need to look at your variable expenses and see if there is anything you can adjust. Maybe you can decrease your grocery budget or get rid of cable if your income is not matching up with your expenses.
Determine How You Will Manage Your Budget
The last thing you will need to do is decide how you are going to manage your budget. This can be done in many ways. You can use the paper method, in which you will simply keep up with your budget and spending in a notebook. There are also a number of electronic budget managers that you can use as well. Many people also like to use an all cash system and keep it in envelopes labeled for each category of the budget to help curb excess spending. Choose the method that best works for you so that you can be successful in your budgeting efforts.
Keep in mind that when you are creating your budget that yours will be completely different than someone else’s budget. There are so many variables, from pay frequency to different expenses. Budgeting is like exercise—the more you do it, the better you will get! If you need tips for budgeting, be sure to visit the SideMoney blog for more helpful tips.