If you never have enough money or always need to borrow money, then maybe it’s time to set up a budget plan for yourself. Setting up a budget will help you have money every month, and without one, you might run out of money before your next paycheck, which can lead to more debt and stress.
A budget will show you how much money you make and how it’s spent. It will also help you decide what you must spend your money on, such as your “necessities,” and where you can spend less money on, such as your “wants,” and more money on other areas, such as savings and paying down your debt.
If you receive a regular paycheck, are self-employed (subtract taxes and business expenses), or even have side jobs, add back in any automatic deductions for a 401(k), savings accounts, and health and life insurance. All of this will help you develop a true picture of your money going out, the amount you are saving, and your after-tax income.
Before you begin, you will need to gather all of your financial statements from the last three months to create a monthly average.
Some examples of what you will need:
- W-2s, paystubs or 1099s
- Bank statements
- Investment account statements
- Credit card statements
- Utility statements
- Insurance statements for home and auto
- Mortgage loan statements
- Auto loan statements
- Payment receipts for things such as entertainment, groceries, and childcare
One popular budgeting plan is the 50/30/20. This plan allows 50% for necessities, 30% for your monthly wants, and 20% for your savings account and debt repayment. This plan will enable you to pay down any debt, cover your current costs, and save for future or unexpected expenses. A budget calculator can also make it a little easier to start.
Necessities include groceries, housing, utilities, phone, transportation costs, insurance, child care, and loan payments. Your wants can be challenging, and your needs are essential for your everyday life to live and work. Some wants could include dinners in or out, gifts, travel, and entertainment such as a movie. Your savings account and debt repayment plan will allow you to save for the future, pay down your debt, and put something away for unexpected expenses.
Most experts say there is no need to follow a specific budgeting system as long as you are fully aware of your income, debts, goals, and general spending. In other words, live within your means and know you are on track to reach your goals.
Automatically deposit as much as possible to your savings account so the money will get there with minimal effort on your part. Set it and forget it.
Another priority would be to start an emergency fund. Building up several months of living expenses will help you eliminate accumulating any additional debt every time something unexpected happens.
It is also a great idea to revisit your budget plan occasionally since your income, expenses, and priorities will change over time. This will allow you the opportunity to adjust your budget accordingly before you get off-tra
