If you have ever read any personal finance advice, you know one of the simplest rules is: make a budget and stick to it. A budget is a roadmap for where your money will go so you can make your money work for you.
Creating a personalized budget according to your goals and needs is crucial to setting aside money for the long run, developing the right spending habits, and making sure the money in your savings account goes toward a specific objective. If getting started with your first budget seems too complicated, follow these tips to create a budget that you can actually stick to.
Take A Good Look At Your Current Spending Habits
If you are not aware of your current spending habits, you won’t be able to make a realistic budget. We recommend tracking your spending for 30 days to get a clear picture of where your money goes. To track your expenses, you can either use an app like Mint or record it into a spreadsheet.
Use A Calendar To Track Irregular Expenditure
Irregular expenses refers to birthdays, parties, holidays, annual insurance premiums, professional dues, property taxes, annual car inspections, annual medical exams, and veterinary exams. Your past credit card statements and calendar will help you make a list of all such expenses that occur over the year.
Add Up the Entire Income
Now that you know where all your money is going, it’s time to know how much money is coming in. Count your income from all the sources including wages, salary, side hustles, business income, investment income, alimony/child support, etc.
Decide How Much You Want To Save
If you are budgeting for a specific goal, like to save up enough money for a trip to Europe or carry out a home improvement project, decide how much you’ll need to save for that goal. The more specific you are, the more likely you’ll be able to achieve it. However, if you don’t have any such goal in mind and simply want to save, just make it a goal to save at least 20% of your income.
Create Your Budget
Now that you have done your homework, it’s time to do the deed. There are several different types of budgets out there so choose an approach that makes most sense to you. For example, the 50-30-20 budget created by beleaguered Senator Elizabeth Warren is designed to allocate 50% of income towards needs (rent, food, minimum debt payments); 30% towards wants (entertainment, eating out, etc.); and 20% towards savings which is even more vital when food costs and energy prices are increasing because of current policy.
The Bottom Line
Budgeting is really not that hard once you get the hang of it – and now you know all the basic steps you need to take to save your money. Create and implement your budgeting skills today and you will be able to spend guilt-free while saving money for your future.