One of the truly crucial steps in getting your finances and spending under control is to create a budget. It is the framework upon which a strong financial foundation is built.
Without the ability to create and use a budget, you are destined to bounce from one financial crisis to the next.
For many people, the idea of having an actual written budget feels alien. It may even seem impossible. I am here to tell you it is not.
In fact, a simple budget, one that is easy to make and follow, can be created in a few minutes. OK, maybe there is a little prep time in there, too, but it is much easier than you think.
Follow along with these six steps to easy budgeting and you will soon be on your way.
1. Understand what a budget is and what it is not.
A budget is essentially a money plan. It is a way to itemize your income and expenses so it leaves you on the positive side of your paycheck each month.
It should be used to help you identify areas of financial priority and manage your spending. By the way, a byproduct of creating a budget is it helps to reduce your stress levels.
2. Begin to create a budget.
In order to make a budget, we need to go back in time.
It is not actually time travel, but we need to go back over our expenses for a period of time. If you are able to, try to look back at least three months.
If you do not have the ability to do this, then it is time to start documenting everything you spend money on for the next month. Keep a log and make entries consistently.
3. Take a look at earnings or income.
This should be an easier task, if only because it is usually less work.
It is fairly easy to look at your paycheck records, plus any extra income, and arrive at an accurate number.
4. Starting with your income amount, deduct your expenses.
What is left over should be a positive number. If it is not, do not panic. That just means you have some cost-cutting to do.
5. Adjust your expenses now.
Even if you have more income than expenses, it does not mean you do not have some prioritizing and trimming to do.
If you have not figured in a decent amount of savings, now is the time to find where you can get that from. Go over each line of your expense sheet and see where you can cut back.
Depending on how close your income and expenses are, you may want to sharpen your knife.
6. You should have more on the income side.
The excess on the good side of your balance sheet is what is called discretionary income. That is what is left over for you to spend as you see fit.
Of course, you should also ask yourself whether you have really planned for enough savings. After all, you can never be too safe.
Once you are living on a balanced budget, you can expect to feel less stress about your financial choices. It will also show you potential areas where you can save even more.
At the very least, it will help you to stay within your spending limits and avoid getting into debt. For that, your wallet and your credit score will thank you.
Photo source: foodinsurance.com.
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