Building a budget is vital to financial freedom. Sitting down and creating a budget for the first time may sound boring, but it will be worth your time.
Follow these easy steps to get your budget in place.
1. Gather Your Financial Paperwork
Before you begin, gather all of your financial statements, including:
- Bank statements
- Investment accounts
- Utility bills
- W-2s and paystubs
- Credit card bills
- Receipts from the last three months
- Mortgage or auto loan statements
You will want to have access to any information about your income and expenses as you begin to build your budget. One of the keys to the budget-making process is to come up with a monthly average. The more information you have, the easier it will be to build your budget with accuracy.
2. Calculate Your Income
How much income can you depend on each month? If your income is just a regular paycheck and taxes will always be automatically deducted, then using the net income, or take-home pay amount is fine. If you are self-employed, or if you have other sources of income, such as child support or Social Security, you will want to include those also. Adding these up will then be your total monthly income.
3. Create a List of Monthly Expenses
Write down a list of all the expenses you typically expect to have during a month. This list may include:
- Mortgage payments or rent
- Car payments
- Personal care
- Eating out
- Transportation costs
So what are the steps to get on track with your expenses?
- Take a pause on big purchases. If it's not something you need, wait a week after comparing prices before making any decision.
- Never spend more than you have. If you can’t pay cash, don’t buy it.
- Stick to a lower credit card limit. A large credit limit could lead to unnecessary spending.
- Budget to zero.
- Try a no-spend challenge.
- Stop paying for fees.
- Plan your meals. Planning means you know what ingredients you need and can reduce the number of times you eat out and also prevent you from buying items you don’t need.
- Do your grocery shopping online. When you shop online, you are less likely to make mindless purchases. Make a list, stick to the list. There are free options to pick up your groceries and affordable options to have them delivered. Compare a few specific to your area before committing to a membership.
- Use an app to stay on track. Although there are plenty to choose from, explore them to find out which one will work best for your situation. Pocket Guard is free and links to your bank account and credit cards for easy tracking.
Spend time reviewing your budget periodically to make sure it still meets your needs and goals, making adjustments as needed. Stay on track with your savings because what we have learned over the past year is that you could get hit with the unexpected and need to be prepared with backup funds.
Small savings can add up, so don’t get discouraged if you can only contribute a small amount monthly. Stay on track and go after your goals.
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