For most things in life, besides time, we need money. For example, to buy an apartment, a car, etc., you need a source of savings. At GroundBanks, we want to help you with this, and we have gathered the best tips for creating a budget to help you achieve your financial goals.
What is a budget?
A written monthly budget is a financial planning tool that allows you to set how much you will spend or save each month. It also allows you to track your spending habits.
Although budgeting may not be a fun activity, it is an important part of maintaining a healthy financial state. This will help you achieve your goals that require a certain amount of money, such as buying an apartment or a car.
When making a budget you should aim for a balance, that is, if you spend less in one area, you can spend more in another, save that money for a big purchase, create a fund for “rainy days”, increase your savings or invest in a property .
Ultimately, the result of your new budget will show you where your money is coming from, how much there is, and where it all goes each month.
A budget only works if you are honest about your income and expenses. To make an effective budget, you must be willing to work with detailed and accurate information about your income and spending habits.
How to make a budget in six easy steps
To create a budget that works and allows you to live a comfortable and happy life, you need to keep a firm grip on what you are currently spending, what you can afford to spend, and what your priorities are.
Before you embark on making a budget, find a good template that you can use to fill in the numbers for your expenses and income.
While you can budget your money using pen and paper, it’s easier and more efficient to use a monthly budget spreadsheet or budgeting app. These will contain designated fields for income and expenses in various categories, as well as built-in formulas to help you calculate your most realistic budget surplus or deficit.
1. Gather all your financial documentation
Before you begin, gather all your financial statements, including:
- Bank statements
- Investment accounts
- Recent utility bills
- Credit card bills
- Receipts for the last three months
- Mortgage or car loan statements
You should have access to all information about your income and expenses because one key to the budgeting process is to create a monthly average, and the more information you have, the better.
2. Calculate your income
How much income do you have available each month? If your income is a paycheck with taxes automatically deducted, then it’s fine to use the net income (or take-home pay) amount.
If you are self-employed or have outside sources of income, you must include these, too. Record this total income as a monthly amount.
If you have a variable income (for example, from a seasonal job or freelance work), consider using the lowest monthly income as your reference source and include that figure in your budget.
3. Create a list of monthly expenses
Write a list of all the monthly expenses you expect to have. This list could include:
- Mortgage or rent payments
- Car payments
- Sure
- Groceries
- Utilities
- Entertainment
- Personal care
- Eat out
- Childcare
- Transport costs
- Journey
- Student loans
- Savings
Use your bank statements, receipts, and credit card statements from the last three months to identify all of your expenses.
4. Determine your fixed and variable expenses
Fixed expenses are mandatory expenses for which you pay the same amount each time. These include things like mortgage or rent payments, car payments, internet service, or tuition.
If you make a standard credit card payment, include that amount and any other essential expenses that tend to stay the same each month. Likewise, if you plan to save a set amount or pay off a certain amount of debt each month, also include savings and debt repayment as fixed expenses.
On the other hand, variable expenses are the type that will change from one month to the next, such as:
- Groceries
- Gasoline
- Entertainment
- Eat out
- Gifts
If you don’t have an emergency fund, include a category for “surprise expenses” that could pop up during the month and derail your budget.
Start assigning an expense value to each category, starting with your fixed expenses. Then, calculate how much you should spend per month on variable expenses.
If you’re not sure how much you spend in each category, review your last two or three months of bank or credit card transactions to get a rough estimate.
5. Calculate the total of your monthly income and expenses
If your income is higher than your expenses, you’re on the right track. This extra money means you can put funds toward areas of your budget, such as retirement savings or debt repayment.
If you have more income than expenses, consider adopting the “50-30-20” budgeting philosophy . In a 50-30-20 budget, “needs” or essential expenses should make up half of your budget, wants should make up another 30%, and savings and debt repayment should make up the final 20% of your budget.
If your expenses are higher than your income, that means you are overspending and need to make some changes.
6. Make adjustments to budgeted expenses
If you find yourself in a situation where your expenses are higher than your income, look for areas in your variable expenses that you can cut back on, such as eating out less, or eliminating a category, such as canceling your Netflix gym membership.
Now, if your expenses are significantly higher than your income or you have significant debt, reducing your variable expenses may not be enough. You may need to cut your fixed expenses and increase your income to balance your budget.
Try to keep your income and expense columns equal. This equal balance means that all of your income is accounted for and budgeted toward a specific expense or savings goal.
Now you know how to budget your money and, in this way, save up to be able to buy an apartment.
