In the age of automatic payments and deposits and smartphone apps to help you save money, budgeting can seem incredibly boring and almost out of date. But the truth is that without a budget it is almost impossible to be financially successful. Creating an easy-to-understand budget is only the first step in the process, however – you also need to create a budget to follow no matter how much you want those extra caramel cappuccinos with expensive almond milk.
Whether you are looking to buy a new home or finally go abroad, knowing exactly how much income you are making each month and how much of it you are spending to meet your financial goals is important. But according to a study by the US bank from 2016 only 41 percent of Americans use a budget to keep track of their finances. This is despite the fact that almost half of Americans said they would have to borrow money for a $ 400 emergency, according to CNN.
So you can create an easy-to-understand budget – and stick to it – so that you can finally start the big journey or pay off the remaining student loan.
Calculate your after-tax income
This is one of the easiest parts of the whole process: easy calculate what you do in a month after taxes. Or, if your income fluctuates, Calculate what you earn on average over the course of three or six months. NerdWallet suggests adding anything that you’ve automatically deducted from your salary – like 401 (k) deductions, health and life insurance, and for some pre-tax transit costs – back into the grand total.
Make sure you do too any money you make side gigs (after taxes), gift money or regular sources of income such as child support, maintenance or rental income, according to Payoff Life.
Calculate the cost of your needs
Next, you should make a list of all of your necessities along with the costs. Necessities can include groceries, housing, utilities, transportation costs, insurance (health, life, and auto), your phone bill, occasional clothing expenses, and so on. NerdWallet suggests considering the following: Childcare costs getting you to work and the cost of minimum loan payments. (This will make more sense later, but if you pay more than the minimum amount for one or more loans, the amount you pay above the minimum amount will be put in the “Repay Debt” section of your budget rather than the “Necessities” section , according to NerdWallet.)
Once you’ve calculated what you’re spending each month, Payoff Life recommends adding in unexpected costs such as car repairs. You can do this by adding an additional 10 to 15 percent of your total spending. So, for example, if you’re spending $ 2,000 a month, multiply that by 0.1 for a total of $ 200, or 0.15 for a total of $ 300. Then your total spend would be $ 2,200 or $ 2,300 to account for these unexpected costs.
Calculate your “will” expenses
This is the most upsetting part of budgeting. Add up everything you spend money on in a month that you have no need to do. This includes things like coffee that you don’t make at home, movie tickets, restaurant dinners, or haircuts. It can be difficult to decide whether something falls into the needs or wants category. For example, if you were going to the gym to maintain your mental and physical health and both suffered, cut costs and stopped walking, you might find your gym membership a necessity. But you might consider going to a cheaper gym if you really need to cut down on overall expenses. You may also need a car, but you don’t need it to need an expensive car.
If you spend more than your after-tax income every month, just take a deep breath – more than half of Americans They are in the same boat as you, according to research by the Association of Young Americans and the AARP. People often spend the most on dining and entertainment activities, such as a bar or a movie.
If you chronically overspend then how to increase your income or reduce your expenses is where your budget comes in.
Decide which budget plan is right for you
There are many different ways to budget, but here are two of the simplest: the 50-30-20 budget plan and the envelope system.
the 50-30-20 system may sound like an intimidating math mess, but it’s super easy and ensures you can save up.
Fifty percent of your income should be used for essentials, 30 percent for necessities, and 20 percent for paying off debts and saving. So if you were making $ 3,000 a month after tax, you would be spending $ 1,500 on essentials, $ 900 on needs, and $ 600 on savings and debt payments. If you’re struggling with math, NerdWallet has a nifty one Plug-in calculator here to help you calculate what your 50-30-20 would be.
Here you can decide how you want to change or manage your expenses. When the sum of your needs is more than 50 percent of your income, you need to take some money from the 30 percent range – your needs – and spend some of it to meet your needs.
The second incredibly simple budget is called the envelope system, and NerdWallet suggests it as a great solution for high earners.
With this method, you take out the fixed amount of money that your budget allows you to spend on needs and desires, for example. If your budget allows $ 900 a month to spend, take $ 900 in cash and put it in an envelope. You can keep this envelope in a safe place and withdraw cash from it for the duration of the month. Once the envelope is empty, that’s it – no more expenses for that month. And now you see the simple beauty of the envelope method.
If getting cash is too much of a hassle for you, you can also try paying all of your bills at the beginning of the month and then transferring your savings to a savings account. The rest of the money is what you have for groceries and other needs that you can buy all month as well as your needs. (This approach would require more discipline as you would have to be careful if you broached your “need” money without knowing it.)
Check your budget regularly
The first time you’re calculating and implementing a budget, you may want to keep track of your expenses throughout the week – by writing down every time you spend money, or by keeping a spreadsheet online – so you can make sure you stick with it keep . If you use the envelope method, you can evenly divide your “want” money into envelopes for each week so that you don’t spend too much and have very little money left for the next week.
Once you’ve got your budgeting under control and aren’t over-spending, you can probably check your budget every month or so.
If you’re having trouble, try an app
If you’re struggling with the envelope or 50-30-20 method, or just hate math, a budgeting app like this can give you a try Mint, PocketGuard or Wally. Regardless of how you do it, budgeting will take away some of your money worries and help you save for retirement or that dream vacation.
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