A budget is necessary to build wealth, eliminate debt and cut your expenses. Many people find that creating a budget can be a very stressful task, but it doesn’t have to be.
A simple way to describe a budget is to ensure you do not spend more than you make. It is very easy to overspend if you don’t know what your expenses are. As you are preparing, consider the following tips and tricks when creating a budget:
Determine Your Assets
It’s time to identify how much money you have available. At this stage, it’s important to look at your income, and all your bank accounts. Make sure you understand the interest rate you’re paying, along with any expenses associated with the accounts. If you don’t know how much money you have available, you will not be able to have a successful budget plan.
Calculate Your Income
It’s important to understand how much you have coming in on a monthly basis. When learning how to create a monthly budget, it is really important to determine your income accurately. At this stage, you will determine your monthly income. If your job hours vary and you can never be sure how much you’ll make in thirty days, look through your past pay checks and figure out a minimum that you can reliably expect to receive. Make sure you are calculating your budget with correct numbers. If you list that you make more than you actually do, it will negatively affect your budget.
Identify Your Recurring Payments
The next step to a good budget is to understand what recurring payments you owe. It is important to know all of your recurring payments when creating a budget. Make a list of the payments you have, such as:
- Credit cards
- Car Payment
- Student Loan
Include the total amount owed, minimum monthly payment and interest rate. By listing your minimum payments, you begin to see a picture of your financial health.
Calculate Your Net Worth
Now that you have an idea of your average income and average payments you can determine your net worth. At this stage, subtract what you have (assets in accounts) from what you owe (payments) and the result is your net worth. Ideally, your budget should allow you to end up worth more than you owe.
Determine Your Monthly Expenses
Now that you have an idea of your net worth and your average monthly income, you are ready to determine your recurring monthly expenses. For this stage keep your receipts, utility bills, gas, food, and any other expenses over a one month period. Divide the bills into categories that make sense for you. For example:
In our next blog entry, we’ll discuss the next steps toward establishing a workable budget, and some tips and tricks to help you whittle away some payments and pay off your debts faster than you ever thought possible. We hope you have learned a lot on how to create a budget.