Happy New Year! Many of us are creating goals this time of year. Perhaps you have a few that revolve around your personal finances. A budget can help. We talk about budgeting all the time, but many don't know where to start. There isn't just one answer, but there are some steps that will help you see where your money is currently going to streamline the budgeting process.
How does one create a budget?
1. Figure your monthly NET income - your take home pay!
2. Track ALL your spending for one month. Grabbed a drink at the gas station? Record that too! Credit card purchases are included.
3. Once you have tracked your expenses for one month, sort the expenses into categories. These can be things like housing, food, clothes, gas, auto, miscellaneous, etc. Create the categories on a piece of paper or a spreadsheet like this.
Oil Change $20
Windshield Wipers $10
a. Include any debt payments, monthly subscriptions, auto bills
b. Don't forget that saving can be a category
4. Create the budget - give each dollar a name
Start by adding the expense amounts by needs such as mortgage/rent, utilities, insurance, food, fuel, medication, etc. See the example below. Keep in mind that the numbers are for example only. Every budget is different.
Next, add expense amounts next to other categories you have listed.
Deduct all expense amounts in the budget from your net pay. The amount should be zero or greater than zero.
If you still have money left over that needs to be added to the budget, savings could be a good place for that.
If you are spending more in your budget than your net pay, adjust to live within your means.
Oil Change, Tires, etc
Spotify, Netflix, Amazon
Movies, Arcade, etc
5. Review your budget regularly and adjust where necessary.
If it's budgeted for one category, it doesn't get spent in another area.
Continue tracking where you spend money so you can adjust your budget accordingly.
6. Extra things to keep in mind
Keep your financial goals in mind as you create your categories. Maybe you want to contribute to 401(k), save for a vacation, or start an emergency fund. These can be line items added to your budget.
If you are a 1099 Independent Contractor, budgeting for taxes is a good idea. Your tax professional can help you determine how much to set aside for this.
Make sure you have money in the account your subscriptions are deducted from in time.
Elexys Thomas graduated from Utah Valley University (UVU) with a degree in Personal Financial Planning - a top 3 school for financial planning and has passed the Accredited Financial Counselor exam. She is passionate about sharing financial principles and helping individuals and families meet their financial goals. She'll be updating this page monthly to help you with your financial wellbeing. You can reach her at email@example.com