If you never have enough money or are always needing to borrow money, then maybe it’s time to set up a budget plan for yourself. Setting up a budget will help you with having money each and every month and without one, you might run out of money before your next paycheck that can lead to more debt and stress.
A budget will show you how much money you make and how it’s spent. It will also help you decide what you must spend your money on, such as your “necessities”, and where you can spend less money on, such as your “wants”, and more money on other areas such as savings and/or paying down your debt.
If you receive a regular paycheck, self-employed (subtract taxes and business expenses), or even have side jobs, add back in any automatic deductions for a 401(k), savings accounts, and health and life insurance. All of this will help you develop a true picture of your money going out and the amount that you are saving along with your after-tax income.
Before you begin, you will need to gather up all of your financial statements from the last three months so that you can create a monthly average.
Some examples of what you will need:
- W-2s, paystubs or 1099s
- Bank statements
- Investment account statements
- Credit card statements
- Utility statements
- Insurance statements for home and auto
- Mortgage loan statements
- Auto loan statements
- Payment receipts for things such as entertainment, groceries, and childcare
One popular budgeting plan is the 50/30/20. In this plan, you allow 50% for necessities, 30% to your monthly wants, and 20% to your savings account and also to debt repayment. This plan gives you room to pay down any debt, cover your current costs, and save for future or unexpected expenses. A budget calculator can also make it a little easier to start.
Necessities are things like groceries, housing, utilities, phone, transportation costs, insurance, child care, and loan payments. Your wants can be difficult to make a decision on and your needs are essential for your everyday life to live and to work. Some wants could include dinners in or out, gifts, travel, and entertainment such as a movie. Your savings account and debt repayment plan will allow you to save for the future, pay down your debt, and put something away for any unexpected expenses.
Most experts say that there no need to follow a specific budgeting system as long as you are fully aware of your income, debts, goals, and general spending. In other words, live within your means and know you are on track to reach your goals.
Automatically deposit as much as possible to your savings account so the money will get there with minimal effort on your part. Set it and forget it.
Another priority would be to start an emergency fund. If you can build up several months of living expenses it will help you eliminate accumulating any additional debt every time something unexpected happens.
It is also a great idea to occasionally revisit your budget plan since your income, expenses, and priorities will change over time. This will allow you the opportunity to adjust your budget accordingly before you get off-track. Check your account statements, categorize your expenses, track consistently, explore new options, or room for some change.