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Creating your own monthly budget isn’t all that complicated, but it can be tedious and frustrating when you’re just starting out. After all, creating a spending plan often means cutting back on areas you might enjoy, like eating out and entertaining. If you too have a mountain of debt weighing you down, your monthly budget may need to be temporarily strained too— At least Until you take care of your most unruly bills.
Add in the fact that budgeting is an ongoing process, and it’s easy to see why so many don’t. Emily Guy Birken, co-author of the money management book Stacked That being said, budgeting is a bit like doing laundry in that sense. “It’s not a one-and-done job, and it has to be dealt with regularly. There are no shortcuts,” she said.
With this in mind, the key to successful budgeting is making it enjoyable and routine. Birken says there are some important questions you should ask yourself before you start. For example, if you go to the coffee shop with your laptop, wouldn’t it be more fun to check in every week? Can you make Tracking Fee a game? Finally, how can apps and programs help eliminate the things you don’t like doing?
The more you can do to lighten your budget, the more likely your spending plan will stick. So if you’re ready to plan your financial life each month, here are six steps to help you create an effective budget.
First, you need to know where your money is going. This usually involves listing bank statements and credit card bills for at least the past six months and looking at them to calculate your spending on essentials and non-essentials.
For example, looking at your statements for the past month might make you realize that you’re spending too much at the grocery store, or that your Amazon spending is out of control. Perhaps you find that your hobbies take up a large portion of your income, or that a significant portion of your discretionary funds are spent eating out.
Armed with this information, you can proceed to the next step in the process.
Step 2: Write down all your monthly expenses and bills
On a piece of paper, take the time to write down every need and bill that comes up each month. This includes fixed expenses such as rent or mortgage payments, insurance premiums and car payments. However, you’ll also need to estimate the cost of any variable expenses you have, such as groceries, utilities, and gas for your car.
Also, remember to list all your debts and their monthly payments. For example, list minimum payments for credit cards, personal loans, etc. Once you know your regular expenses, you’ll know what you’re dealing with.
Next, you’ll need to write down a rough estimate of your earnings for any given month. Obviously, this step is made easier if you are paid a salary or an hourly rate for a fixed number of hours.
If your income is variable, take your last 12 months of pay stubs to estimate your monthly income and use that as your basis for income.
With your desired monthly bills and expenses listed in one column and your income in another, you can begin to create a spending plan that addresses issues and money leaks you’ve discovered while tracking spending from previous months. For example, you could use discretionary dining out spending toward paying down debt faster, or you could decide to put that money into a savings or retirement account.
Ideally, you’ll write a new budget that uses your income to cover each of your fixed expenses while helping you reach your goals. This applies whether you want to save more income for the future, or you want to focus on paying off your debt. Or maybe you want to build up an emergency fund just in case. Maybe you want to do a little of each. Either way, your new budget should accommodate just about anything you hope to accomplish.
From here, you can also decide how you want to spend your money in the future, such as whether you want to continue paying your bills with a credit or debit card, or if you’d prefer to switch to the cash envelope system to avoid credit cards altogether.
Step 5: Ready to Adjust and Modify
Once you’ve written your new monthly spending plan, you’ll want to keep an eye on all the different numbers through the next month. You can even cross paid items off your budget if you want. As the month progresses, you should also track spending in variable categories such as groceries, gas, and eating out.
In the meantime, you should plan to make mistakes! It’s easy to dismiss off-tracks as negative evidence, but that’s not the case, Birken said. Not only that, but the consistent return to good habits has more impact on financial health than occasional missteps.
As you work to improve your budgeting strategy over time, remember that there is nothing perfect in any human endeavor. “Your goal is to improve, not to be perfect,” she says.
It’s only natural that some aspects of your budget change over time. After all, if you pay off your debt, you may lose your expenses entirely, and you may encounter an unexpected windfall that helps you make further progress. Of course, the reverse is also true and you may find yourself earning less in the years to come.
Regardless, Birken says it’s important to remember that your goal timelines can change, and they likely will. “Make room in your plan to be flexible, change your mind and adjust your expectations,” she says.
Whatever you do, take the time each month to write out a monthly spending plan and stick to it as best you can. You’ll have good months and bad months along the way, but follow your plan as best you can, then rinse and repeat.
Creating a budget isn’t rocket science, but it’s one of those tasks that’s all too easy to put off. If you’re feeling overwhelmed by the idea of creating a spending plan, be sure to look for free budgeting tools that can help you stay on track while monitoring discretionary and fixed expenses. Maybe you can find a budget spreadsheet or budget tracker that you like, or maybe you can make a personalized budget template that fits your ideas.
You can also contact a fee-based financial advisor if you need help. After all, a financial advisor can help you plan your investments and can also help you define your goals. Sometimes knowing what you want out of life can serve as motivation to budget your hard-earned dollars.
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