Special To California Business Journal.
Are you finding yourself strapped for cash every month? Do you feel like you’re losing more money each month than what you’re making? If so, then bad spending habits might be to blame.
Shockingly, more than 40-percent of Americans spend more than what they make, which leads them to pay off debt for the rest of their life. That pain could be avoided if they were to start a money spending plan, or budget, for each month.
There are many things to include in a budget, but where to start? Be sure to read below for how to create a monthly spending plan to help you start saving.
This is the first mistake that most people make. They start budgeting after the month has begun, which means they’ve already spent money before they set a budget.
An effective monthly budget accounts for every. single. dollar. That means that if you make $3,000 a month, then each of those 3,000 dollar bills is assigned to a task. They all have a title and a purpose.
To account for each dollar you make and spend that month, you need to plan before the month begins. If you’re setting a budget for May, start planning it the last week of April.
This will help you gather up essential bills such as your rent, phone bill, and energy bill, which are usually due at the beginning of the month. From there, you can develop a plan for the rest of the money.
As the previous paragraph just alluded to, you must account for all of your monthly expenses first. These are things you’re required to pay such as your rent, car bill, WiFi bill, insurance bills, etc.
Adding up these expenses first is necessary because it lets you know how much money is off the table from the start. You should act as if the amount of money going towards those monthly expenses never existed.
For example, say you make $4,000 a month on your paychecks. After adding up all your monthly expenses (and checking your math several times), you conclude that they all add up to a total of $1,500. That means you have $2,500 left to work with.
Side note: if you have a lot of debt, then you might want to consider routes of debt consolidation. Be sure to check out Debthunch for more information on what that might look like.
For some career fields, your monthly income can be hard to project. Unless you’re a salaried worker, you might not know how to correctly predict the money that will be coming in for the month.
Often times you can’t predict the exact amount, so just use a ballpark figure instead. If you’re going to guestimate, then be sure to lowball the amount. That way, if you end up making more, it can always be added down the line.
Remember, you need to project what your income will be after taxes. So the math isn’t as simple as dividing your annual salary by the number of weeks in the year. Be sure to use a previous paystub in order to see how much you’ll make after taxes.
One of the most important things to realize about budgeting is that every month is going to be different. Some will be busier than others.
For example, there might be things like holidays, birthdays, vacation dates, etc. that will cost money. You need to be accounting for those days as you plan your budget for the month ahead.
When you sit down to do your budget, be sure to keep your calendar close by to look at all of the upcoming events that will cost money.
Also, be sure to plan for things a few months down the line as well. If you aren’t careful, things like Christmas, vacation, and other expensive occasions will sneak up on you quickly. Try saving up a few dollars each month towards those events.
Another top priority in your budget should be gradually saving money. Be sure to think of things like building an emergency fund, investing in a 401k, and paying off debt.
This can help you protect your future, even with the uncertainty of what might happen tomorrow. No matter what goes down, you’ll have some finances to back you up.
That all starts by factoring into your budget each month. Don’t get overwhelmed; saving money is a marathon, not a sprint. You shouldn’t have to sacrifice your lifestyle to build up savings
A monthly spending plan that doesn’t factor in things like paying for entertainment and shopping isn’t legitimate at all. You’re setting it up for failure from the start.
Be honest with yourself on how much you use each month to entertain yourself and your family. While it might be important to cut back (everyone needs to from time to time), you don’t have to lock yourself in your house to save money.
Moderation is key. Add up all of your entertainment expenses from the previous month (preferably while sitting down) and see where you can cut back.
Now that you’ve seen all the different ways to plan out your monthly spending plan, it’s time to take action.
Devising a plan is the first step towards success. If you stick to it, this can be a life-altering decision to start taking back control of your finances.
Be sure to browse our website for more articles on budgeting, as well as many other helpful topics.