Starting and maintaining a budget is a key first step for improving your personal finance. While not everyone has the time or skill to put together a professional, financial advisor quality budget, that level of knowledge isn’t necessary to get started or improve your existing budget.
What follows are some easy tips to help you get started creating or maintaining a simple budget.
Budget Tips, Where to Start?
The easiest place to start is to take a look at your current monthly expenses. Your bank account or credit card online account should have the ability to export all your expenses, depending on how detailed you want to get here.
A good first step is to grab the last three to six months of expenses and figure out your average monthly spending. You can then break that down into categories such as housing/rent, debt, utilities, food/household goods, vehicle expenses, special expenses, and health/dental insurance. Most banks and credit card companies already break down your expenses into categories for you, so you can just use the same ones for simplicity.
I like to estimate on the higher end when figuring out the monthly averages to build some cushion into my budget. You should also have entertainment factored in as well but we’ll touch on that later.
Determining Monthly Income
When determining how much you’re bringing in each month, basing your budget on two or four paychecks a month (if paid weekly or bi-weekly) is a neat little trick to build in some wiggle room. If you manage to keep your expenses to less than 48 weeks worth of income, you’ve just given yourself two to four “bonuses” every year! It’s also not ideal to factor in overtime if you can help it, as that is something that can disappear at any time. Don’t worry if you aren’t there yet, just acknowledging the need to improve is the first step towards realizing your goals.
Remember to Pay Yourself
Saving for the future and creating an emergency fund are must haves when creating a budget. When saving for the future, the best time to start is yesterday. The next best time to start is today. Make sure you are taking advantage of any 401k matches if your employer offers them, as it’s free money that can make a big difference in planning for retirement. If you don’t have two to four months reserves for emergencies, this should also be a priority. Pay any high interest debt off first, then roll that expense into your emergency fund.
Identify Ways to Save More
Now that you have an idea of where your money is going, it should be easier to identify spending habits that can be modified or eliminated. Find yourself eating out several times a week? Try limiting it to once a week. Spending an arm and a leg on cable TV? Explore other cheaper streaming options like Sling TV. You might also find ways to save on your car insurance by shopping for new quotes from other providers. The point is that once you have the details in front of you, it becomes easier to find ways to improve your finances.
Budgeting for Entertainment
We mentioned this earlier, but I believe it’s worth its own discussion. Cutting out all entertainment from your budget will make it impossible to follow. Enjoying the fruits of our labor in the short term is just as important as saving for the future. Build in expenses for an annual vacation, date nights, or activities with your friends. The key is planning so there are no surprises when you get that monthly credit card statement. I speak from personal experience when I say your mental health will thank you.
A Quick Note on Budgeting Software
There are many options available for budgeting software and services, a good one for beginners is Mint. But, any quick google search for “Best Free Personal Financial Software” will yield a lot of results and guide you through the options. While software designed for budgeting has a lot to offer, making a simple spreadsheet is all you really need.
One More Thing to Keep in Mind
The most important thing when it comes to creating and following a budget is to just start. It doesn’t matter if it’s perfect or not detailed enough or even if it’s unrealistic for your situation. If you don’t ever start a budget, you’ll never improve it your finances. A bad budget is better than no budget as long as you’re learning from it and trying to get better.
Now that you have that new budget in hand if you’re in the market for a new or new to you vehicle check out our 5 Tips For Buying a Car.
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