Creating a budget is intimidating to many people. They might think that it means that they cannot spend any money, or that their lifestyle will instantly become restrictive. However, that could not be further from the truth. A budget is designed as a way for you to write down and track how you spend your money each month, allowing you to save more money where you can or even spend more in specific areas.
If you live paycheck to paycheck each month, a budget helps to make sure that you have enough money at the end of each month so that you can pay all your bills. For many people, not having a budget means that they might run out of money before their next paycheck, causing financial stress. However, if you have thought about creating a budget, it does not have to be a daunting task. If done correctly, it can seem like no effort at all.
What is a budget?
Before you can create a budget, it is essential to understand what a budget is and why you should have one. By tracking both your income (what you make) and your expenses (what you purchase), you can determine how much money you should be saving and how much extra money you could be spending each month to live more comfortably.
Why should I create a budget?
You might think that you already save enough money each month, or that you have enough money in your savings account to cover any unexpected expenses. But what happens if you have to make an unexpected large purchase? Do you have enough money to replace a car or household appliance, or pay for a medical emergency? Saving money and creating a budget can give you a sense of security that allows you to think positively about your financial situation. It also prevents you from being surprised if you are hit with any unexpected bills.
How to Create a Budget
If you are ready to start a personal budget, you are going to need to have certain documents on hand to determine your budget accurately. First, you will need to gather any information that details your income, such as pay stubs. Next, you will need to collect your expenses, such as rent or mortgage, insurances and car payments. Expenses also include utilities, cable bills and phone bills. Now that you have determined your income and main expenses, you will need to think about how you spend your money each month on items that do not include the essentials, such as food, gas, entertainment, school supplies, clothes and credit card bills. Finally, when determining your expenses, do not forget to include any unexpected expenses that may have come up in any given month, like medical bills or car repairs. It is important to note that you might make purchases that change in value every month, like groceries or gas, so look at these expenses closely each month to predict what your expenses might be over time.
If you do not get paid regularly, you can still make a budget. You just have to take a different approach. If you predict that you will make the same amount of money this year that you did last year, then you can add the money you made last year and then divide that number by 12 for the number of months of the year. The total you get is how much you will have for every month this year, which you will use to determine your budget.
How to Determine How Much You Can Spend
Now that you have set up your budget, you are ready to calculate your monthly budget. To do so, you will need to subtract your expenses from the amount of money that you made that month. Do not forget to include not only your paycheck, but also any other income you receive, like Social Security benefits or child support. If the total you get is less than zero, then you are spending more money you take in, meaning that you are over budget for that month. To fix your budget, you are going to need to study your expenses and look for expenses that you can change. Make sure to look for any items that you do not need or a way for you to spend less in certain areas. Figuring out how much you can spend is especially necessary for creating a family budget, as children add even more expenses to an individual or small household.
Learn to Track your Monthly Spending
Now that you have determined your individual budget, you are ready to implement it. Each month, you will make a plan to decide how you are going to spend the money that you earn for the month. For each day of the month, you will need to write down your expenses. At the end of each month, you will use the data you have collected to determine if you have spent what you were allocated. You can also note where you spent more and where you spent less. All of the information that you gather from the budget will help you plan your budget for the following month and help you find new ways to improve your financial situation.
Track Your Spending with From your Phone
If you are worried that you are not going to be able to track every purchase you make each day, or if you think you will forget to add certain purchases to your budget, you can use the help of a budget app. From the tips of your fingers, budgeting apps and apps that track your spending are a digital and easy ways to track your daily purchases right from your phone. Among the most popular budgeting apps are:
- Mint: Mint lets you synchronize all of your bank accounts, credit card, investment accounts and loans in one place. The app also lets you track your budget and discover new ways to save money. The app is free and allows you to link accounts and add manual inputs. Mint is available on iOS, Android and Kindle.
- BillGuard: BillGuard enables users to keep track of your spending by month, type, and location, and you can get free access to your credit report and other protection tools such as data breach alerts. The app is free, but there is an annual fee if you would like to add credit monitoring and identity theft insurance. BillGuard allows you to link your accounts but does not allow manual input. This program is available on iOS and Android.
- Penny: Penny sends you text message alerts about your finances and provides graphics and humorous updates regarding your purchasing habits. Free to use, Penny lets you link your bank accounts but does not allow for manual input. Penny is available on iOS and Android.
Now that you know that you can track your spending and budget from your phone, you can make budgeting an afterthought, and think more about how you are going to reward yourself for creating an adequate budget.