The term “budget” is part of nearly every article on gaining financial control. And for good reason. If you don’t know how much you’re spending, on what, nor how much you should be spending, you can never really get ahead in life. You’re also leaving yourself vulnerable to life’s risks.
A car title loan calculator can tell you what you’ll probably get if you need cash fast. But if you don’t do a better job of tracking your money, you’ll find yourself in crisis again and again.
Create a budget. Here’s how.
Know What You’re Bringing In
Your first step is to calculate your net income, which is what you bring home each pay period. Otherwise, you may think you have more cash than you do, causing you to overspend.
Gig workers, freelancers, or contract workers must stay atop contract details and pay to help manage inconsistent income.
Know What’s Going Out
It’s just as important to track your spending. You must learn exactly where your money’s going. This can help you find out what you’re spending on the most and where you can cut back in accordance with your goals.
Start by listing your fixed monthly bills such as your mortgage or rent, car payment, and utilities. Next, list expenses such as gas, entertainment, and groceries that can change from month to month. You may find ways to cut back here, especially if you examine bank and credit card statements.
Document what you spend daily, whether you use an app, budgeting spreadsheets, or a pen and paper.
Establish Realistic Goals
Now you’re ready to set goals. Your short-term goals should be those that take roughly one to three years to reach. Those might include reducing credit card debt or establishing an emergency fund, for example.
Long-term goals could take decades to achieve and might include your child’s education or saving for retirement. While your wants and needs will change some as life changes, having goals will encourage you to stay with your budget.
Create a Plan
You can use your expenses list to gain a feel for how much you’ll spend in coming months. Compare that list to your priorities and net monthly income. It’s a good idea to establish realistic spending limits for each expense category.
You might even want to go further by breaking down your expenses into “needs” and “wants.” For example, if you use the WiFi at home for work, that service counts as a need. On the other hand, your monthly Netflix subscription is a “want.” This difference will really matter when you’re searching for how to redirect funds to your financial objectives.
Adjust Your Spending
Now that you’ve done all that work, you should adjust your spending to remain on budget and not overspend. After all, you want to have money to earmark for your goals. Cut first from your list of “wants.” Next, consider your “needs,” a few of which may be “wants” in disguise.
You may even want to go deeper and adjust your fixed expenses. Perhaps you can get cheaper rates on WiFi car or homeowner insurance, for example.
Regularly Review Your Budget
Now that you’ve set your budget, you must regularly review it as well as your spending. Things change. You might get a raise or get married, for instance. It’s smart to periodically review your budget, employing the steps above.
