Budgeting and saving your money seems simple, doesn't it? Then why do so many people find it intimidating? To start with, it is easier and often more fun to spend money without really thinking about it. Even those who intend to follow a budget fail for a variety of reasons. Perhaps your budget is not an accurate reflection of your past spending, or it lacks clear, attainable goals. Or perhaps creating a budget is tedious or seems too difficult. There are many budget templates you can use for your budget. Excel, for example, has some great budget spreadsheets to help you get started, or you can create one from scratch. To use an Excel template, simply open Excel, search "budget," select a template, click create, fill in the requested information, and save. Templates are a great place to start. But the key to creating a budget and saving money is to make your budget realistic and personal. Your budget should fit your financial life, like a comfortable piece of clothing, so that you use it consistently. Here are the essential elements of your personal budget.
What is your net income?
Notice that we are talking about your net income. It is easy to overestimate and overspend if you are thinking in terms of your total salary. Take out your deductions, (Social Security, taxes, 401(k) and flexible spending account allocations). What is left is your net income, and that is the number you should work with. If you have an irregular income, it is still possible to create a budget, but you need to keep track of your time and be sure to build in an emergency fund or have a second source of income in case work dries up.
How much do you spend?
Start tracking your spending by listing all fixed expenses, such as rent or mortgage, car payments, and utilities. You have to know how much you need each month just to make ends meet. Then list variable expenses, such as gas, food, and entertainment. You will probably find many opportunities to save. For example, cut back on restaurant meals and instead make healthy, inexpensive meals at home. Watch out for hidden expenses, the ones you don't even think about, such as that quick stop at the coffee shop. Small expenses add up quickly. For recording your spending, use any method that works for you, whether it is an app or a pen and notebook.
What are your goals?
Before you let your expenses overwhelm you, make a list of financial goals. These include short-term goals (a year or less) and long-term goals, such as retirement or a child's college fund. These goals may change over time, but they are important.
What's the plan?
Now you know where you are financially (your budget), as well as where you are going (your goals.) Your budget will help you predict your expenses in the coming months. Investigate the financial tools available to help you meet your goals. These may include a simple savings account or a certificate of deposit (CD), which locks your money in for a fixed term, but usually pays higher than a savings account. You can set up an automated transfer between accounts so that a portion of your paycheck goes directly into your savings. For long-term goals, you may want to consider individual retirement accounts (IRAs), or stocks or mutual funds. Make sure any financial advice you get is reliable, but it is also a good idea to educate yourself on the different types of investments and the risks and rewards of each. Look at balance minimums, interest rates and fees.
Is your budget complete?
You may have a spreadsheet with all of the necessary information entered, but to stay on track, you have to review your budget regularly. Your life is a work in progress, so is your budget. You may get a raise or have a reduced income. Expenses go up and down due to factors in your life and the economy. It is important to keep looking at your budget and making any adjustments necessary. Sticking to your budget will help you get out of debt or stay out of debt. It will also help you work towards achieving your goals.
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