In case, you are constantly trying to save some money for your future or a significant purchase, you need to create a personal budget smartly and follow it strictly. A personal or household budget should include all the sources of your potential income and essential expenses that cannot be ignored. When you start sticking to a well-defined weekly or monthly budget, you tend to lower the chances of overspending and curb unnecessary expenses.
So how do you create a budget that leaves you with some cash at hand by the end of every month? What are the things you must keep in mind while creating your budget? Below are some steps and tips that will let you design a brilliant budget.
Record All Your Sources of Incomes
Whether you are a businessperson, self-employed individual, or a freelancer, you need to have a clear picture of the total income you earn every month. In case, you are a full-time worker with a secondary job as well, don’t forget to record both of these incomes. In case, your income is in the form of regular paychecks or it directly reflects in your account where taxes are automatically deducted, then consider the net or take-home salary. Make a note of all these incomes.
Record Major Expenses
Make a list of all the expected expenses that you will have throughout the month. These expenses should include every fixed and variable expense that you know will come your way during the month. The fixed expenses can include home rents, mortgage costs, utility bills, car rentals, credit card, and loan installments, cable and internet bills, etc. Basically, every expense that will remain constant throughout. In fact, the variable expenses can include grocery costs, medical bills, entertainment expenses, dining out bills, gifts, etc.
Gather Documents
Try to maintain all the documents, bills, and financial statements every month. The documents should include bank statements, investment accounts receipts, utility bills, loan and credit card receipts, information regarding a source of income, and every other proof of the expenses you make. Gathering and maintaining these documents will support your incomes and expenses that you list down. Also, at the end of every month, these documents will help you complete the calculation easily. If you need any extra information during calculating your expenses and savings, you can easily dig these documents for a clear picture.
Set Goals
Once you know your total net income and the expenses you will potentially spend on, it’s time to decide your goal. Are you looking for a long-term saving plan? Do you want to save for a piece of furniture or a new iPhone? Or do you wish to save for a major investment? You need to select and set your goal. Along with the goal, you also need to set a timeline for yourself. Set a deadline so that you can save wisely for your goal. Goals and timelines will help you be mindful of your expenses and savings, and prevent you from overspending too.
Outline Exceptions
Out of all the expenses you have, you will surely have some exceptions where you can try and reduce the amount you spend every month. For instance, you can classify your entertainment and dining out expenses as exceptions. Therefore, this means that you are willing to compromise there and try to control your spending habits for movies, sightseeing, holidays, dining, and other entertainment options. Outlining exceptions will help you decide the areas where you have scope for saving a bit extra.
Try to Cut Down
With the help of the exceptions you outlined, you can start cutting down on your expenses. These exceptions are the areas where you can first control your spending. In case, apart from these expectations, you can try several other ways to save every dollar. For instance, you can take public transport to work instead of a personal vehicle to save on fuel costs.
Compare Two Months
Ideally, your savings of the current month should be more than the previous month’s. If you aren’t left with more money at hand than the last month, you aren’t going in the right direction. Month-after-month, your the amount you save should increase. And after a point, where you just can’t cut down on any expenses, the comparison should be constant over several months.
Keep track of your savings and review your budget at regular intervals, it is very important to. Take a look at your finances and compare how well you saved after every month. Keep track of all the expenses you made in the current month. Carefully analyze the things you spent on, besides the necessary fixed expenses. Keeping your goal in mind, try to cut down on the expenses further in the current month. Then, at the end of your current month, compare the expenses with last months’ expenses. Also, compare the amount you are left with the end of every month.
Download Budget Applications
It’s always better to work with software applications rather than working manually using your book and pen. Using mobile applications lower the risk of errors and ensures that you are in line with your budgeting plans. Thus, seek assistance from the free and paid budgeting mobile applications available for Apple and Android smartphones. You Need A Budget (YNAB), Seedly, Wally, Toshl, Expensify are some of the mobile applications that you can consider downloading. These apps not only record all your incomes and expenses but also give a monthly report of your financial situation.
Creating a budget is extremely simple. However, sticking to it wholly depends on you. Once you have a budget in place, see to it that you follow the budget diligently. In case, you fail to follow your budget, you will end saving nothing, and you will have no update about your finances.
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