Every year a good financial plan starts with a solid budget. Whether you’re looking to pay your bills or save for a dream vacation, budgeting is your first step in reaching your financial goals. Follow these steps to establish a realistic budget.
Start with the amount of money you make after taxes each month. If your salary varies, it is acceptable to use an average, but the more accurate the better. Don’t forget about other sources of income like alimony, child support, interest, dividends, and rental income. Now that you know your income, you can see where it is going.
Let’s break down your monthly expenses into specific areas. For many people, this is grouped into accommodation, transportation, utilities, and food (restaurants are excluded here). After that, you can use additional cubes like dining out, vacation, clothing, etc.
Please note that some expenses may not be billed monthly so check the previous month and get an overview of your monthly expenses.
If your expenses are already higher than your savings, you have 2 options. Either make more money or spend less. In general, it is easier to cut expenses than to make more money. Look at your budget and see what can be cut out easily. Eat less in restaurants? Less new clothes? If you save more than you spend, great. Are you satisfied with the amount saved? If not, what else can be removed?
You have savings! Congratulations. What’s the best thing to do with it now? If you have high-interest debt, it may be better to pay it off. You can even consolidate this debt at a lower interest rate to save more and pay it off faster. A good goal is to set a savings goal to accumulate $ 1,000 in your savings account and then turn it into a 3-month emergency fund. If you prefer to target a percentage of your income, try 5% or 10% and then increase your savings rate over time.
Try to stay within your budget by checking it every week or two. That way, you can quickly see how your expenses are being tracked, what needs to change, and if you are meeting your financial goals.
Good luck, and don’t forget that there are many online resources like Peace by Happy Money that can help you on your financial journey. Get started today!