(ThyBlackMan.com) Even if you are not a financial expert, any financial advice you might have read will always have one singular suggestion: create a budget. Without a budget, trying to manage your finances is like taking a cross country road trip without a map or address. While you might get where you need to be, the trip will be unnecessarily difficult! With the right tools and resources, your budget plan can be successful, and more of your hard-earned money can stay in your pocket.
Budgets assign your money a place and can help you establish spending limits to teach you more financial responsibility. Creating a unique, personalized budget is essential to developing the spending habits and behaviors you need for creating a long-term financial plan.
Getting Started on Budgeting
While this may seem like the most daunting task, getting started on your budget is one of the easiest parts about your budget! Any financial expert will attest that a budget must be unique to you, as it will be most beneficial this way.
In order to create a unique budget plan, you’ll need to use an estimate of your monthly and yearly income. To determine your actual income, you should look at your monthly bank statements to get an accurate picture of your spending and how much you actually bring in.
Some additional income you will need to consider includes:
- Wage Income
- Residual Income from Side Jobs
- Alimony
- Child Support
- Investment Income
If your income varies throughout the month, plan for the lowest amount you generally receive.
With your bank and credit card statements in hand, you can get a better idea of what your expenses are throughout the month. Your expenses can be broken down into two different categories:
- Variable Expenses: These expenses are ones that will change throughout the month. Generally, this category includes costs like transportation, entertainment, and food.
- Fixed Expenses: These are expenses that will not change throughout the month. Usually these expenses include items like your mortgage, rent, loan payments, etc. If you have a title loan payment or any other car payment, these are fixed expenses that will usually have the highest priority on your expenses list.
Keep Yourself Accountable
After your expenses have been identified, creating your budget is simple. Using your statements, separate your past month’s expenses into the two listed categories. This can be an opportunity for you to diagnose where you are overspending throughout the month.
Even if you are not overspending, you might find that you are spending outside of your means. What this can mean is while you are able to make your payments, they might be too much for your budget.
If you are spending over $450 on a car payment, it might be time to downgrade to a model that is more affordable, so you can dedicate that money towards your savings.
When it comes to your rent, you should spend less than 30% of your income. The general recommendation is no more than 30% of your monthly income before taxes should be spent on rent. Therefore, if you are making $4,000 a month, your rent should be no more than $1,200. This percentage can be adjusted if you have a roommate or partner contributing to the rent as well.
Make Financial Goals
Creating a budget can often mean creating financial goals. These goals can range from long term to short term, and they can be used to keep yourself financially responsible. Some popular financial goals include:
- Saving for Retirement
- Buying a House
- Buying a Vehicle
- Saving for College
- Saving for a Vacation
- Building an Emergency Fund
- Paying Off Debt
When you set financial goals, they should align with your budget so that you can achieve them. Goal setting can help increase your motivation, especially if you have short term goals that are easily attainable.
Before creating your budget, you should have a financial goal in mind in order to tailor your budget. If your goal is to create a larger emergency fund, set aside a certain percentage of your paycheck towards an account just for the fund. Generally, you should set aside at least 10% of your income to fill the emergency fund. However, if you get hit with a large expense and don’t have an emergency fund already built, consider searching “registration loans near me” to find a quick funding solution to get you through.
Track Your Budget
It’s all well and good to create your budget plan but staying on top of it is much harder. The most difficult part of creating a budget is keeping track of it! One of the easiest ways to track your budget is through an app made specifically for budgeting. While a physical ledger may work as well, an electronic one can be more accessible and convenient as it calculates everything for you.
Another reason to track your budget is to keep yourself accountable. If you are carrying your budget with you and updating it after every purchase, it might be harder for you to make impulsive purchases.
Irregular Expenses
While tracking your budget for day to day expenses can be helpful, your budget plan should also consider irregular expenses that you make throughout the month. This can be particularly useful for holidays, birthdays, annual expenses, and taxes. When you do have irregular expenses that you are planning for, your budget for the month should be evaluated again.
Change Your Financial Behaviors
In addition to keeping track of your budget, there should be a shift in your behavior as well. Your spending habits are one of the first behaviors that should be changed after you create a budget.
If you are normally a person that buys coffee in the morning before work, it can be helpful to invest in a coffee machine instead. Coffee can cost upwards of $40 a week, which is more than enough to buy a coffee machine. Making your own coffee at home can mean saving over $150 a month!
This type of savings can be replicated with your lunch as well. If you go out to eat during the week, you might find that taking your lunch to work can help you save a pretty penny. Think of the money you’ll save during the month if you spend a little time meal prepping!
Staff Writer; Ron Johnson
