What is a budget?
A budget can have a negative, restrictive connotation, but it’s a plan for your money and how you’re going to use it. By making a plan, or budget, it gives you control and gives your money a purpose.
The basics to building a budget
Making a budget can seem overwhelming, but the easiest way to start is by deciding how you are going to create your budget. This can be in a spreadsheet, on paper or in an app. It’s important to have your bank statements in front of you so the information is easily accessible.
From there, let’s go over the basics to building a budget:
- Determine your net income. This is what you bring in after taxes. If you get paid twice a month, this can be determined by multiplying your paycheck by two. Whether you get paid weekly or biweekly it’s a good idea to calculate what you typically earn.
- List your monthly expenses. It is important to start with your essential expenses that are roughly the same every month such as housing, utilities, and transportation. Then estimate what you will spend based on past spending, such as gas and groceries. When you are first starting, this can be difficult to guess, but don’t get discouraged.
- Track all your expenses regularly. It is important to understand where your money is going. It may take a few months to understand where your money is going so it is important to be vigilant when tracking your expenses.
- Subtract your expenses from your income. Once you understand what your expenses are every month, subtract that from your income. This will determine what you have left to put towards debt or into a savings account. If your expenses are more than your income, reevaluate your expenses.
- Make a new budget every month. No two months are the same, so adjust as you need to. There will be month-specific expenses to prepare for like holidays, birthdays or annual expenses. Write those into your budget to prepare yourself.
Let’s review:
A budget should be customized to you and each one is different. Make sure you set up a plan that is the best fit for you. If you aren’t sure how to get started, we have a team of advisors who can help. Contact us here.
