As noted everywhere, creating a budget is critical to saving money. Unfortunately, many people have no idea how to do this and have never implemented a budget.
Do you know where your money is going each pay day? The importance of a budget is that it keeps you focused on what you have and how you spend it.
Keeping track of deposits and withdrawals from your bank account is easy thanks to the financial apps that we can access. Work with your spouse or partner to create a spending plan and use a method that will help you track how you’re using your money.
Budgets can be created in software like Quicken or GnuCash, or you can use a simple spreadsheet.
Even without these options, you need a way to determine where the money is going every month. Creating a budget with software can give you more control of your finances and let you visualize how you can save money. So, what are the steps to creating a budget?
Step 1: Determine Your Monthly Net Income
The first step is not making the mistake of using your gross income to create your budget. Subtract deductions, like Social Security, taxes, 401(k) and flexible spending account allocations, as you create a budget.
Step 2: Track All Spending
You need to keep track of and categorize your spending to identify where you can make adjustments. This will help you to decide where to cut back on spending. Start by listing your fixed expenses (car payments, mortgage, utilities) and then list your variable expenses (gas, groceries, entertainment).
Step 3: Set Attainable Goals
Before you start analyzing what you’ve tracked, create a list of your short-term (12 months or less) and long-term (years to decades) financial goals Remember, identifying your priorities before budgeting will help.
Step 4:Create a Budget
Take all spending for the next few months into consideration. Review your past spending habits to forecast your variable expenses. You can even break down your expenses between necessities and luxuries.
Step 5: Adjust Spending Habits as Needed
Once you have your budget, you can start to see where you have excess dollars or where you can redirect unnecessary spending to savings. As you make adjustments, track how much money you save.
Step 6: Stay on Top of Your Budget
Everyone should review their budget regularly to keep on track. Things can come up: You may get a raise at work, unexpected expenses may increase, or you could reach your goal and want to create a new goal.
Once you have a good sense of what money is coming in and where it is going out, you can look at ways to save on expenses.