Creating a budget seems scary to a lot of people. Putting together a workable budget is possible and can be a useful tool for reaching your financial goals.
People create budgets for a variety of reasons. Some may look to get out of debt, others may have been fired from their jobs, while others may look to make a large purchase. Making a budget can seem like a daunting task, but it does not need to be. It is possible to put together a solid budget to help you reach your goals in just six steps.
Step #1 Figure Out Your Financial Resources
The first thing to do in creating a budget is assess your financial resources. How much do you make at a job? Do you have a side hustle? How about a home business? Write all the sources of income down that you have coming into your household every month. Knowing the exact amount of money you have coming in is essential for creating a useful budget.
Step # 2 Determine Your Expenses
After you have determined your financial resources, it is time to figure out monthly expenses. One smart way to do this is to write everything down you spend money on over the month. From utilities to a coffee at the gas station, you need to create an accurate log of purchases.
After you have finished tracking your expenses, it is time to separate them into fixed and variable expenses. Fixed expenses and expenses that need to be taken care of each month, like rent or electricity. Variable expenses can be things like groceries or entertainment, anything where the financial amount may change. Seeing what you are spending your money on will help you determine where changes in spending can be made.
Step #3 Set Realistic Goals
Once you have collected this information, it is time to set some realistic goals. You want to start with things that won’t be too difficult to achieve. Start with something like a home improvement or new kitchen appliance, to begin with. As you use your budget, you will see ways you can adjust your budget, so it will work better for you. Do not get discouraged if your budget doesn’t work out immediately. The most important thing is you stick with it so you can reach your goals.
After you achieve a budget that you can work with, set more goals. These can be long-term goals like paying off a sizable debt. You could decide on some short-term goals as well. Always remember that the goals that you set need to be ones that you can accomplish. If not, your budget is probably not going to work.
Step #4 Make a Plan
Now that you have assessed your finances and set some goals, it’s time to make a plan. Do you need to cut some monthly purchases? Perhaps you need to increase your income to meet a goal? Do you want to have a certain amount set aside in savings? You need to find ways to achieve the financial goals that you have set for your household.
Step #5 Remember to Pay Yourself First
A successful budget means that you are paying yourself first. What is paying yourself first, you might ask? This is when you set aside an amount of money that you do not touch. Many households set up a separate savings account for this. Paying yourself first has many benefits, with the largest one being that it helps you set up an emergency fund of sorts that can help you stick to your budget should any financial emergencies arise.
Step #6 Keep Track of Your Progress
Taking your progress when working with a budget is important. This gives you the chance to see where you can improve. Making budget adjustments can make it simpler to stick to a budget and reach your goals.
Don’t get discouraged if you need to change your budget. Staying as flexible as possible will help you to be successful. There can be various things that can happen that require you to make adjustments so you can continue to work toward your financial goals. While budgets can seem like a difficult thing to make work, if you stick with making them work, they can help you achieve your financial goals.