Budgeting In 4 Easy Steps

It might be really easy to spoil yourself every day without checking how much money you have in your bank account.

But let’s be honest—you don’t want to be living from one paycheck to the next, dealing with debt, and having nothing saved for emergencies. So unless you have a money fountain in your backyard , you need to have a plan for how you spend your hard-earned money.

Step 1: Know your Income and Expenses

First, Write Down Your Monthly Income. This should be your income after tax. That is the money you earn minus taxes, medicare, social securities, and so on. Once you done that, the next step is more painful: figure out your monthly expenses. These typically include rent or mortgage payment, utilities, student payments and so on. Add up these expenses into your monthly budget, then add up the total cost for a year, then divide the number by 12 to see how much they cost each month.

Step 2: Set your financial goals

If you want to succeed in budgeting, you need to have an idea of what you are trying to accomplish. When you creat a personal budget, it should align with your goals. It can be short term saving goals like going on a vacation or long term savings like paying off for student loans. Next, set a goal for yourself and make it a motivative one. Your financial Plan could be the only thing that could stop you from using your credit card indulgently.

Step 3: Find your favorite Budgeting Method

Once you know where your money is going, it is time to choose a budgeting plan that fits you best. There are plenty of different ways to budget.

• Spreadsheet Budget

  Keep track of how much you earn and spend using a Microsoft Excel or Google Sheets spreadsheet. You can also make bar graphs, line graphs, and pie charts to visualize your data.

• Zero-based budgeting

  A zero-based budget is a plan where you decide where every dollar of your income goes each month. After subtracting all your spending, savings, and debt payments from your income, you should have nothing left over—everything is accounted for.

• Cash Envelope System

  People who use the cash envelope system put cash into envelopes based on their spending limits for things like groceries or entertainment. Once the envelopes are empty, you have to stop spending until the end of the month or whenever you refill the envelopes.

Even after you’ve chosen a budgeting method you like, don’t be afraid to adjust it to fit your own financial situation. You can mix and match parts of different budgeting methods to create a budget that works best for you.

Step 4: Find the best budgeting tools for you

You are not alone in budgeting your money. There are tools that can help.

• Budgeting App

  While budgeting on paper is effective, using your smartphone can make it easier. A budgeting app simplifies the process and helps you track your spending in real time.

  
  

  Many apps can connect to your checking account, automatically sort your spending, and show you how much you can safely spend before your next paycheck. Some apps will even create a budget for you based on your previous spending habits.

  
  

  Some apps require you to manually enter your spending. This can give you a better understanding of your spending habits and help you spot ways to save money, without needing to review months of bank statements.

Key TakeAways:

• Review several months of expenses to get a clear understanding of your spending.

• Setting a financial goal is crucial for successful budgeting.

• With so many budgeting methods available, choose one that fits you and adjust it as needed.

• Use a budgeting app on your smartphone to simplify the process.