Maintaining personal finances can be challenging for many of us. It requires a certain kind of willpower—as well as some specific knowledge—to understand how to keep spending under control, save money wisely, and set yourself up for financial health for years to come.
Perhaps the most essential tool – and the best starting point for a healthy financial life – is the budget. We’ve all heard of them and have probably even tried to create one for ourselves at different points with varying degrees of success. By creating a budget, you can do more than just write some numbers on a sheet of paper and try to stay within limits. It requires some research, a good understanding of how much money comes in and where it goes, and some honest accounting of your actual needs versus wants.
To create a realistic budget for yourself, you need to understand your current spending levels. You can’t just guess and hope for the best. So when you set out to create a budget, gather all the paperwork that shows your income and expenses. This includes pay stubs, tax forms, bills, loan statements, investment paperwork and receipts. Today, some banks allow you to download your spending history into a spreadsheet, so if you’re able to use a tool like this, it’s a great way to see where your money goes. Can be a time saver. Just make sure you have all the information you need to make an educated decision.
Using all of the documentation you’ve gathered, figure out your monthly income, starting with your net income from your job. This is the take-home pay you receive after taxes. Add in either side’s income from things like investments or gig work. Then, make a list of all your expenses and add them to each category.
fixed vs variable
Once you figure out your expenses, you need to categorize them. Fixed expenses are the same each month, such as car or house payments. These are usually expenses that must be paid to meet basic needs, but you should also include regular credit card payments if you make them the same amount each month. Additionally, if you want to save a certain amount every month, consider it as a fixed expense. Variable expenses are those that change from month to month. Some are optional, such as entertainment or dining out, while others, such as buying groceries or filling your gas tank, are not.
Once you have established all the current facts, you can start making changes for future spending. If your expenses exceed your income, for example, look for ways to reduce your spending, such as cutting back on alternative shopping trips or reducing streaming services or other subscriptions. Or, if you want to save for a specific purchase or emergency fund, look for places where you can cut spending in favor of savings. Write these down and check your math to make sure it adds up correctly.
Unfortunately, budgeting isn’t a set-it-and-forget-it tool. You should keep track of your expenses throughout the month and track your expenses in your mentioned categories. Technology can help here, especially in the form of many budgeting apps available on your phone. These tools vary in complexity and effectiveness, and some require a subscription fee, which you must budget for. Still, they can be beneficial in tracking spending or remembering to stay on track when temptation strikes. Some of them will even help you do math and create categories.
Budgeting is not a fun activity for most people. Still, once you create your budget and get into the habit of sticking to it, you’ll find that you enjoy the financial freedom of knowing what you can afford each month with an emphasis on Regardless of whether you can afford it or not. You will also make more informed decisions and build a healthier financial ecosystem overall.
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