If the word “budget” fills you with dread, it shouldn’t. Learning how to make a budget can feel like a chore, but it’s essential to getting out of debt and learning to manage money. With a solid budget, you can not only get on top of your spending and income, but you can also make a map for your financial future. Instead of thinking of a budget as a strict set of rules and regulations, we encourage you to think of it as a set of directions that can help you plan your future.
The Basics of a Budget
Learning how to make a budget means learning to take a close look at two areas in your financial life: income and expenses over a set period. Some people make a monthly budget while others prefer to map out a plan for a year. What’s most important is that your expenses, or the amount of money that leaves your bank or wallet, is not more than amount of your income.
It’s a good idea to keep track of your expenses and income for a period before you sit down and put together your budget. Collect your receipts or review your bank and credit card statements to see where your money is going. Create categories for your expenses, such as housing, car payments, and groceries.
When figuring out your income, look at the amount you bring home after taxes. That amount gives you an idea of what you have to spend each week, month, or year. Once you’ve tracked your income, you can compare it to your expenses. If your monthly take-home pay is $3,500 and your monthly expenses are $3,700, you’ll know you need to make some adjustments to your spending or earning.
One of the best things about a budget is that it lets you clearly see where you’re overspending or aren’t spending enough. Many of your necessary expenses, including housing, car payments, bills, debt repayment, and food, can’t be easily changed. Other expenses may have more room for adjustment.
For example, you might create a category for clothing expenses on your new budget and see that you’re spend 25 percent of your income in that category. This means you can’t allocate that money towards more pressing expenses.
When you track your spending, you’re able to see whether you’re making progress toward your financial goals, such as saving for retirement, creating an emergency fund, or paying off debt.
Look at the Real You
When you put together your budget, it’s essential to make it fit your lifestyle. You should try to make room for the things you enjoy so that you don’t feel constrained or overly restricted. If you like shopping, for example, give yourself a small amount to spend each month. If you enjoy going out to eat, leave some room in the budget for that. Just remember that your fun expenses shouldn’t overwhelm the necessities.
Create a Goal
Another part of making a budget is setting goals. Ask yourself what you want your money to do. Do you want to save for retirement, a down payment on a house, or for a vacation? Include at least one goal in your budget.
Putting together a budget, especially for the first time, isn’t the easiest task. A financial professional can help you learn the basics of budgeting and money management so that you can reach your financial goals. You can work on making a budget on your own, but keep in mind that someone is there to help you if you need it.
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Consumer Education Services, Inc. (CESI) is a non-profit service provider of comprehensive personal financial education and solutions for all life stages and for all of life’s milestones. Our goal is enhanced economic security for everyone we serve.
CESI is NOT A LOAN COMPANY