Budgeting 101: How to get started with a budget and control your finances
Budgeting is key to getting your finances under control.
You should build a relationship with money based on your needs, wants and financial goals. Do you need to get out of debt? Prepare for the future? Create a better relationship with your money? These are all questions that budgeting can help answer.
To do this, budgeting involves planning your income and expenses over a period of time. How to start? Write your plan out in a notebook, track spending in a spreadsheet, or link your accounts to a budgeting app.
TO SUM IT UP:
A budget is a plan for your income and expenses over a certain time period.
If you need to get out of debt or want to start saving for a big financial goal, a budget is where you’ll start.
STEP ONE:
Figure out your monthly income.
Traditionally, this means look at a recent paycheck to see how much you earn. Then, multiply that by two for a biweekly pay period or by four for a weekly schedule.
If your income varies, take the average of the last three to six months.
STEP TWO:
Add up your monthly expenses and sort those into fixed expenses (such as rent or a car payment) and variable expenses (such as groceries and gas).
You might need to figure out your monthly average for variable expenses to get a feel for the cost.
STEP THREE:
Write down your financial goals.
This could be paying off credit card debt, building a three-to-six-month emergency fund or contributing to a retirement account.
STEP FOUR:
Calculate your discretionary spending.
This includes expenses like streaming services, going out to eat and shopping.
STEP FIVE:
Compare your income and expenses. This is called balancing your budget.
Your expenses should be lower or equal to your income.
If that’s not the case, you have some adjusting to do with your discretionary and variable spending.
SOURCES
Nerdwallet: What Is a Budget?
Forbes: How To Budget In 7 Simple Steps
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