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How to Plan a Budget in Under an Hour

Even if you are vaguely aware of how much you make and spend each month, budgeting can be tedious. However, planning your budget doesn’t have to be complicated. With just a few minutes of your time, you can learn how to plan a budget and cut down on unnecessary expenses. Once you learn how to plan a budget, you can set aside money to pay off debt, buy a car, or save for retirement.

No matter why you want to create a budget, there’s a strategy out there that’s right for you, so it’s important to take the time to set and assess your budget. Whether your goal is to spend less on daily purchases or avoid further debt, your budget should adapt to your needs as they change. Follow these steps to get more familiar with your spending habits and create a budget that works for you:

1. Calculate Your Income

The first thing you should do when creating your budget is to figure out exactly how much money you’re bringing in every month. While you probably have a ballpark idea, now is the time to get out your records to calculate an accurate number. If you don’t receive a regular salary, you will need your pay stubs or bank statements over a few months to calculate an average of what you usually make. If you have any additional jobs or side hustles, don’t forget to add up what you’ve made with each venture over the last year and average that amount as well. Knowing this information will help you determine how much you can usually expect to earn each month across all of your sources of income.

Make sure you remember to deduct taxes and any other amounts that are deducted from your check before the money is deposited in your bank account. This includes insurance payments, 401k contributions, or spending account allocations. As these expenses come out of your paycheck no matter what each month, you don’t need to factor them into your budget plan.

If you need help finding the exact numbers for any of these income sources, many companies now offer online paystub access, where you can see a breakdown of exactly how much you receive each paycheck. Otherwise, you may need to ask your employer for copies of your pay stubs or contact your bank for your account statements.

Once you’ve added your salary and any side income and taken out taxes and any other regular deductions, the final amount is your net income.

2. Add up Your Expenses

If you’re like 71 percent of Americans, there may not be any money left over each month — and you may be wondering why. The answer will vary significantly from person to person, but calculating your expenses will help you better understand where your money is going. Start by accounting for your necessities such as rent, utility bills, car payments, and insurance. These are fixed expenses that must be paid every month. To get an accurate picture of how much you’ll need to spend each month, average at least six months to a year of expenses.

For example, if your utility bill was $ 120 in July, $ 100 in August, and $ 80 in September, you would add up these bills, (120 + 100 + 80 = 300) and divide the result by the number of months (300/3 = 100). With this in mind, you should budget around $ 100 a month for your utility bills.

Next, figure out your variable expenses. These include your groceries, clothing, gas, and entertainment expenses. Though these costs can be tedious to find and add up, it’s important to be thorough when planning your budget because even small expenses can make a difference over time. Start by checking your bank account, receipts, and credit card statements, and don’t forget to add how much you send your friends on apps like Venmo or Zelle.

Once you’ve added up your variable expenses, you might be surprised to see where your money is going. Small purchases are often forgotten because they feel insignificant in the moment. A closer look at your expenses can reveal a pattern in your spending that is a significant drain on your funds. You may find you spend over a hundred dollars at a coffee shop each month, or your weekend dinners at restaurant eat up your extra cash. If your spending in any area surprises you, those expenses are often a good idea to consider cutting.

If this process of adding every little expense over months seems too exhausting for you, some apps available connect to your bank accounts and automatically categorize purchases into living expenses, groceries, gas, or entertainment. An app makes it easy for you to understand how you’re spending your money at a glance with easy to understand graphs.

3. Set Your Goals

Now that you know how much money you have after you subtract your expenses from your income, you can set goals on how much to save each month. This may include deciding not to spend more than $ 100 on eating out for the month or reducing your utility bill by 10 percent. Whether you want to plan a budget because you need to pinch pennies, pay down debt, or because you’re saving for a significant expense, get completely clear on your motivations to help you stick to your budget.

If your goal is to pay off debt, calculate how long it will take to pay it off by dividing the total amount owed by how much extra money you have in your budget each month. Your answer will determine how many months it will take to achieve that goal. Knowing exactly how soon you can expect to achieve your financial goal will help keep you from going over budget.

4. Assess Your Budget

It is crucial to stay up to date with your expenses and assess how well you’re sticking to your budget. Make it a habit to check in on how you’re spending is going throughout the month to make sure you’re on track, and your budget is right for your life. While making specific budget cuts may have sounded like a good idea at first, changing your purchasing behavior can be a lot more difficult in reality.

On the flip side, you may realize you could cut more costs, such as your expensive cable bill. Either way, it’s important to continue to assess your budget over time to make sure that it fits your goals for the long term. Everyone will have different budgeting needs, so you should evaluate your budget on both how much it saves and how likely you are to stick to it.

For example, you may find that using a 50/20/30 budget best helps you organize your expenses. In this budget, spend 50 percent of your income on essentials like your bills and groceries, 20 percent on savings, and 30 percent on personal expenses like a gym membership or clothing costs. This budget may be useful if you find that you struggle with spending too much on entertainment expenses or need help calculating how much of your total income you can afford to pay on rent.

No matter what strategy you choose, it’s essential to leverage your budget to become more aware of your spending habits. Once you’re familiar with your money habits and how to plan a budget, you can get control of your finances and achieve your monetary goals. Budgeting is an ongoing journey, and there are many resources available to you to help you keep track of your spending and stick to your budgeting plan.

Sources:
Payoff | DaveRamsey

The post How to Plan a Budget in Under an Hour appeared first on MintLife Blog.


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