From creating an investment portfolio to saving for your retirement, enjoying summer holidays in the choicest locations and living a financially independent lifestyle, lots of things hinge on creating achievable and realistic financial goals. However, to achieve your financial goals and live a life devoid of financial crises, emphasis must be laid on the establishment of a budget that can help you actualize your dream. Setting up the budget is all about setting aside a specific amount of resources or money for a particular activity or purpose based on a certain timeframe.
Setting up a budget plays pivotal role in our everyday life and it could be a life-saving act especially when financial problems loom. If you would like to stop having to get money with quick loans for bad credit and set up a fool-proof budget for financial success, take a critical look at this detailed budget guide and follow the steps highlighted.
Steps for Setting up a Budget
- Evaluate your expenses
Before creating a budget that will help your finances, you should first evaluate how you spend your money for at least one month. During this month of evaluation of your spending, record your expenses and observe some of the factors responsible for your pattern of spending money. You can use pen and paper, computer software or smartphone apps like Learnvest, Mint, Wally, Moneywiz or GoodBudget to carry out a proper evaluation of your spending. If you keep good records of your bills, bank statements, and receipts for previous months and years, you can use them to estimate your monthly or yearly expenses.
- Define your expenses – mandatory vs. discretionary expenses
Which kinds of expenditures have accounted for the largest part of your expenses? Are they mandatory or discretionary expenses?
Mandatory expenses are necessary expenses that must be taken care of or else there will be problems in the running of your household. Your mandatory expenses could include utility bills, tuition payments, and rent.
Discretionary expenses, on the other hand, are expenses that you can do without. For instance, you may like to buy the latest smartphone in the market to replace your old but functional smartphone; however, you must understand that it is a discretionary expense which can be avoided. It is important for you to make a clear distinction between your mandatory and discretionary expenses as this will assist you when creating a budget.
- Figure out your income
After you have determined your expenditure, you need to put your income into consideration. How much is your salary? Do you have any additional sources of income such as rental income, alimony, interest or child support? Are you entitled to cash gifts or tax refunds? All these sources of revenue must be put into perspective whenever you are setting up a budget. Your budget must be within the confines of your total income.
- Calculate the difference between your income and expenses
Knowing your income and expenses, the next step you should take when creating a budget is to calculate the difference between them by subtracting your expenses from your income. If your net result is positive, you should account for what you have been doing with the surplus. Nevertheless, if you are in deficit after calculating the difference between your income and expenses, you need to live within your means by either cutting down your expenses or expanding your sources of revenue.
- Create savings goals
No matter the amount you are earning, you must imbibe the habit of saving a certain percentage every month. As a thumb rule, you should ensure that at least 10% of your earning is put into savings, so that you can have something tangible to fall back on when you are in financial trouble, need to fulfill a major responsibility or want to invest in something valuable. If you are having trouble following this budget guide concerning creating a saving goal, automate your saving. This involves saving a predetermined percentage of your earnings even before having access to it. This will not only help you in setting up a budget, but it will also give you a head start in gaining financial freedom. Follow up your savings to ensure it is progressive.
- Pay off your debts
Although creating saving goals is an important part of a comprehensive budget guide, paying off your debts is equally essential. Therefore, if you have a home mortgage, student loans or credit card debts to pay, this is the right time to do so. In case you have multiple debts, do not allow fear to influence your decision; pick one of the debts and pay it off first. Unless your debt is small, do not pay it off all at once as this could affect your obligatory expenses.
- Review your budget
Now that you are taking care of different parts of creating a budget, you need to take the time to review your budget and evaluate its feasibility. How realistic is your budget? Do you believe these common budgeting myths? Does it adequately cater to your financial goals (both short term and long term goals)? Will you be able to sustain this budget over an extended period of time? These are just some of the questions to answer when you are reviewing your budget. If the proper analysis is complete, the feasibility of your budget will be significantly enhanced.
- Track the progress of your budget
With your budget correctly created, monitor it from time to time to see if you are making any progress. For proper tracking of your budget, make use of traditional or modern budgeting system such as computer budgeting software. If you are making progress, stick to the budget until you have achieved your current financial goals. If you have failed in setting up a budget or making any progress in the budget you have created, make necessary changes such as changing your plans, cutting down your expenses or expanding your source of income.
As you are following this budget guide in creating a budget that will assist you in achieving your financial goals, you must remember to make a conscious effort towards bringing positive changes into your life. Do not live above your means, spend responsibly, and stick to the budget you have created, increase your earnings and watch your financial situation change positively.