Do you keep a budget of your expenses each month to stay on track financially? If you don’t follow a regular budget, you could be doing yourself a disservice. It’s easy to lose track of spending. Before you know it, you wonder where all your money went. Living without a financial plan could be causing you unnecessary stress and keeping you from reaching your financial goals. Budgeting isn’t as difficult as you might think, and it doesn’t have to be limiting. Creating and sticking to a framework can help you to feel more empowered and in control of your money. Keep reading for a basic guide to budgeting your monthly expenses, and you just might agree that this process offers many benefits.
Compile Your Financial Information
The first thing you’ll want to do is pull together all of your financial paperwork in one place. To know how to budget your money, you must have a clear picture of the numbers. Understanding your overall income, necessary expenses and current spending habits is key to creating a new plan.
Documents to gather include:
- Pay stubs
- Bank statements
- Utility bills
- Mortgage statements
- Credit card bills
- Auto loan statements
- Recent receipts
The more information you can have at your fingertips, the better idea you will have of what you’re working with. You’ll want to be able to create a monthly average of your income and your expenses.
Determine Your Income
Let’s start with the income. This number remains relatively stable for many workers. If your monthly take-home pay varies, use your lowest earning month from the past year as your income. Be sure to include any additional sources of revenue such as child support or Social Security.
Total Your Expenses
Next, you’ll need to get an idea of your total expenses on average per month. You can do this by starting with the fixed expenses, or the ones that don’t change and cannot be missed. Things like mortgage, car payment, student loan bill, childcare, utilities, groceries, and transportation costs should be included here. Then you’ll want to take a look at your receipts for the past few months to get an idea of what you spend on things like entertainment, personal care, eating out, and travel. Finally, you should account for any money you set aside for savings. Add everything up to see how much money is going out.
Review Your Totals
Now is the time to assess your financial totals. The hope is that your total income is higher than that of your total expenses. This extra is money you can use for things like saving for retirement and paying off debts. If you spend more than you make, you will need to seriously evaluate your habits and make some changes.
Evaluate Your Expenses
While it is possible to ask for a raise or work a part-time job, in most cases, your monthly income isn’t likely to change much. So, if you’re not happy with your current income to expenditures ratio, you will need to make some modifications to your spending. This is the time to get honest about where you can cut corners or eliminate certain items. This process will be different for everyone. It may seem intimidating, but even making small changes is a good start.
For example, see where you can save money on the things you’re currently buying. Clipping coupons or checking out rebate sites can lead to significant savings. You can get things like Walmart rebates simply by visiting a website or looking for a code before doing your shopping. For even further cuts, see what you can do without. Perhaps you’ll limit eating out to once every couple of weeks. There are probably services you’re not using that can be eliminated, like a gym membership or streaming service. Every adjustment counts.
These simple tips should help you to set a basic budget. Start with these steps and tweak things over time. With practice, you’ll see that it is possible to be more mindful of your financial habits, and the rewards will be gratifying.