In the United States the word budget has become synonymous with pain. In fact, according to a newly released Gallup poll only 32 percent of Americans keep a monthly budget of their finances. What are the results? Unfortunately, lack of budgeting leads to retirement delays and high debt to income ratios. To help you stave off the overwhelming majority’s fate, we have created a step by step guide for how to create a budget.
1. Track your spending
Before you can create any budget you first have to know what you are bringing in and what you are sending, and the only way to know is to keep track. There are a couple of ways you can do this. The first method is simply by pulling your last couple of bank statements and reading through them to get an idea of where your money goes. The second is to start tracking everything you purchase and every amount of income you acquire at the first of the next month. This will give you a chance to analyze exactly where your money is going.
2. Set goals
Once you know what your finances look like you can then set goals. Ask yourself how much savings you can reasonably acquire over the next year and set up a monthly goal to do so. Get everything in writing either via software like Microsoft Excel or online budget creators like budgetsimple.com which provides various tools for you to use.
3. Keep tabs on your goals
After you set your goals you have to take action to make sure you are reaching them. Keep track of where you spend your money and critique your spending at the end of every month. This will give you a good idea of whether you are really following your budget or not.
4. Never spend more than you have
You set your budget for a reason. After a few months of saving however, you might be tempted to spend more than you earn. Resist that temptation and remind yourself why you started budgeting in the first place.
5. Don’t include extra income in your budget
Year-end bonuses, tax refunds, and investment gains fall into the category of extra income and should not be included in your budget. Anything extra should be put away for savings or applied to larger debt you want to pay off.
If you have a detailed and accurate budget you are much more likely to have financial freedom later. If you stick to it and are dedicated to saving money, your life will be better in the long run.