A budget is a spending plan based on your income and expenses over a certain period of time. As economic times are changing, responsibilities and expenses are still on our necks. There is need to make ends meet with the little or much that you have. Here are some steps on How to create a Budget.
Determine Your Net Income
There is a difference between your Gross Pay and Net Income. Net Income is the amount that will be left after deductions and taxes have been made. It is the final amount that you will actually receive in your bank account and it is the value of your pay check.
Calculate and determine it while considering your different sources of incomes and know its value. Basing your Budget on your Net Income is vital because at the end of the day that is the real amount you have not the gross Pay. Otherwise if you make your budget based on the Gross Pay, you will be including money that you don’t in actual sense have. The taxes and deductions do not belong to you.
Figure out your expenses and spending habits
The second step on How to create a Budget is Figuring out your expenses and spending habits. You can use mobile applications to help you with this or you can simply use a pen and paper.
Track your bills, including your rent, telephone bills, water and electricity bills, shopping bills, entertainment bills among many. You can categorise them into chunks like food and food could have grocery in it, consider transport and shelter. The 3 basic needs. This is establishing where your money knows and additionally being aware of it.
Set proper goals
After you have known your Net Income and tracked your expenses and known your spending habits, it is now time to set proper goals. Goals setting is very individualised. This is because what matters to one person may not matter to another.
Therefore, it is better to set proper goals for yourself. Budget goals could look like saving to buy a house, piece of property, saving enough for an emergency fund, putting aside enough money for the kids education. Setting goals when it comes to budgeting will ground you, it will give you meaning as to why you are saving. Moreover it will help as an anchor incase you need that extra reason.
The next step to create a Budget is now planning. You need to plan. Review your needs and wants. Determine what you are going to do, if you are going to automate your budget or if you are going to it manually. Additionally the percentages of what goes where in your budget.
There are different Budget plans for example, Envelope system, 50/30/20 plan, Zero based budget and Pay Yourself First Budget. Pay Yourself first is an important plan because it focuses on rewarding yourself first through savings and then creating the rest of the budget based on what is remaining.
Adjust your life to stay on budget
After you have planned your budget and decided what amount will go where depending on your goals and analysis, here comes adjusting your life to stay on budget.
Planning draws a map for you and shows you clearly which direction you need to take to achieve certain results. Therefore if there are adjustments that need to be made, the time is now. Change is the only constant thing in every area of your life, finance and budgeting included.
Lastly, keep reviewing your budget from time to time. The reason why this is necessary is because the prices of things keep changing, The economy is constantly changing and affecting different goods and services differently.
On that note, take time to review your budget and even check on how much you are keeping up with it. Make the necessary changes where need be.
Cheers to budgeting!