So you know you should budget your money but don’t know where to even start? Making a budget can seem overwhelming but it doesn’t have to be. The important thing is deciding what exactly you need to include. Don’t stress, we have your back.
In this blog post, we’re exploring essential categories to factor into your budget. From obvious stuff like housing and transportation to things you may not have thought of like subscriptions and entertainment. We’re simplifying it into simple steps so you can feel confident creating a plan that works for you. Read on for a stress-free guide to building your first monthly budget.
Determine Your Net Income
Step 1 is figuring out how much money you actually have coming in each month. Add up your total income from your job, business, investments, and any other sources. Then subtract your monthly living expenses such as housing costs (everything from your mortgage payment to property taxes), utilities, credit card debt payments, health insurance, food costs, and your car payments. What’s left over is your net income – the amount you have available to budget each month.
Some things to keep in mind:
- Account for income that varies from month to month like commissions, bonuses or seasonal work. Estimate conservatively.
- Don’t forget to include in your budget non-monthly income like tax refunds, gifts, or inheritance. Allocate that money over several months.
- Make sure you deduct all monthly expenses, even small ones. Things like grabbing coffee, streaming services or gym memberships add up.
- If your income and expenses change frequently, re-calculate your net income each month. An accurate number is key to creating a budget that actually works.
Once you have your net income figured out, you can start allocating it to essential expenses such as food, transportation and healthcare. Sort costs into specific budget categories and budget a reasonable amount for each one based on your needs and past spending habits. Sticking to a well-thought budget helps ensure your money is going where it needs to each month.
Bottom line? Know exactly how much you’re earning and spending so you can gain control of your finances. With discipline and consistency, determining your net income is the first step to budgeting success.
Set Realistic Savings Goals
Setting concrete savings goals helps keep you on track financially. Think about both short-term goals, like saving for a vacation or new tech gadget, as well as long-term goals such as a payment on a house or simply retirement savings.
Short-term goals
Make achievable goals to save some each month. Maybe work to put aside $40-$50 each paycheck for something you want to buy in the next 6-12 months. Open a separate savings fund just for this goal. As your balance keeps growing, you’re going to stay motivated to keep contributing. Once you reach your goal, reward yourself by making that purchase! Then make a new short-term savings goal to keep the momentum going.
Long-term goals
For bigger financial goals, determine how much you need to save each month to reach your target amount. If a payment on a house is 5 years away, for example, figure out how much you’re going to need and divide by 60 months. Save that amount each month, increasing it as your income allows. The sooner you start saving, the less is needed to be put aside each month thanks to the power of compound interest.
Review your goals and progress regularly. Make adjustments as needed to keep your savings plan realistic. Don’t get discouraged if life throws you off track for a bit. Just re-focus and re-commit to your important goals. You can do this! With time and consistency, you’re bound achieve amazing things with the magic of steady saving and growth.
A couple of other tips to help you save:
- Automate as much as possible. Set up automatic transfers to move money from your checking to your savings accounts each month.
- Cut out small indulgences. Reduce or eliminate things such as coffees, lunches out, or streaming. Spend money working on your goals instead.
- Find ways to increase your income. Ask for a raise at work or develop skills that qualify you for a higher-paying job or side gig. More money in means more money available to save.
- Save windfalls. Put things such as tax refunds, bonuses, cash gifts, and other surprise funds into your savings or emergency fund.
Saving money may require some sacrifices and discipline, but achieving your important life goals is worth it. Stay focused on the rewards to keep you motivated for the long haul.
Allow For Discretionary Spending
A good budget should account for discretionary spending – the flexible side of your budget used for fun or entertainment. If your budget is too rigid, you likely won’t stick to it. It’s important to allocate a portion of your income each month to enjoy life.
Figure out how much you can set aside each month for discretionary items like dining out, movies, hobbies, vacations, etc. A good rule of thumb is 10-20% of your take-home pay. Be realistic based on your income and essential expenses. Track your discretionary spending for a few months to determine a reasonable budget number.
Once you establish your discretionary budget, decide how to allocate it. For example:
- Dining out: $200
- Entertainment: $100
- Hobbies: $50
- Vacation fund: $200
Hold yourself accountable by keeping receipts and logging discretionary stuff. But also give yourself flexibility within the budget. If you go over in one area, cut back in another. The important thing is not depriving yourself but being intentional with your spending.
Track and Review Your Budget Regularly
To make the most of your budget, you need to monitor how much you’re spending versus how much you’ve allocated for different expenses. Compare your actual spending to the budget at least once a month, or more often if you have variable income or expenses. Look for any categories where you’re overspending significantly and make adjustments to get back on track.
Regularly checking in on your budget helps in a couple of ways:
- It allows you to catch any issues early on before they become bigger. If you notice you’ve already spent half your grocery budget for the month in the first week, you can make changes to avoid going over budget.
- It helps keep you accountable for the budget you set. Looking at your numbers in black and white makes you more mindful of your spending habits. Then make a plan to reduce or earn more.
- It gives you an opportunity to reassess your priorities and make changes to the budget. Maybe you didn’t keep enough for essentials like your food budget category or too much for discretionary items such as entertainment. You can adjust the budget accordingly going forward.
- It encourages you to celebrate wins, both big and small. Did you pay off a credit card or save an extra $200 last month? Give yourself a pat on the back for the progress and use that motivation to keep working toward your financial goals.
EASY Wireless’ FREE Phone Plan
If you’re reading this blog, you’re likely facing some financial difficulties or wondering where to start with budgeting. We know neither is easy. Don’t worry — EASY Wireless has some great news.
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To start with EASY Wireless, apply online by clicking the below:
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Or you can come to one of the EASY Wireless’s retail stores, where our customer service agent will help you apply for your benefits.
