We recently ran a blog about the importance of setting up a budget, one of many that we’ve run here for our readers. Today’s blog is about setting up your new budget as easily as possible and, to that end, we have 7 Easy Steps below that will help you to do just that, and make the task of setting up your new budget quite a bit easier and less tedious. These tips are especially help for setting up a single mom budget as well. Enjoy.
Step 1: Ascertaining your Income
In order to be able to budget your money you need to know exactly how much is actually coming in every month. There are payroll calculators that you can use to do this and figure out how much money you actually have to cover your weekly, monthly and yearly expenses.
Step 2: Ascertaining all of your Fixed Expenses
Fixed expenses are those expenses that are the same every month, including the amount of rent that you pay, your car insurance payments, the electric bill, your student loans and so forth. Included in this category should also be one of the most important ‘expenses’, savings. It’s extremely important to pay yourself first and, in order to do that, putting at least 10% of what you make into some type of savings or investment plan every month is vital.
Step 3: Ascertaining all of your Variable Expenses
Variable expenses are expenses that change regularly, including the amount of groceries that you buy, the type of entertainment that you enjoy, the amount of money you spend on clothing and so forth. This is a vital part of your budget as variable expenses are the ones that can be changed, i.e. you can cut back on them if necessary in order to save more and/or pay down debt. This may well be a bigger list than your fixed expenses and should be as comprehensive as possible.
Step 4: Comparing your fixed and variable expenses to your Income
Most financial experts will tell you that your budget should match your outgoing expenses with your income. One type of budget is a “zero dollar budget” that assigns every dollar you make in income to a specific expense. If you use this and the numbers don’t match, cutting back on variable expenses is usually the solution. If you do this and find that the numbers still don’t match, finding ways to cut back on your fixed expenses (which is arguably much more difficult) will be necessary.
Step 5: Tracking all of your Expenses
Here comes the good stuff. Once your budget is set up, you’ll be able to track expenses in every category that you’ve made. There are plenty of software programs to help you do this like Microsoft Money, Quicken or a simple ledger sheet. In order to avoid overspending you should easily be able to see what amount of money is in each category and, if you take a few minutes a day to work on your budget categories, you’ll save much more time than if you sit down and try to do it once a month.
Step 6: Adjusting your budget where Needed
Once you have your budget set up, making adjustments when they are needed will be much easier. For example, if your car suddenly needs repairs or your child gets hurt and you need to bring them to the emergency room, moving money from one budget category to another to cover the extra costs will be much simpler. Just make sure to actually move that money around so that it’s in the right budget category when everything is said and done.
Step 7: Evaluating your new Budget
Once you’ve had your budget in place for a couple of months you’ll get a better idea of where your money is actually going and also where you can cut back. For example, you might be overspending on clothing or entertainment and, knowing that, be able to put more towards savings or a retirement plan.
What we’ve just given you is a very simple budget plan that, frankly, might not work for everyone. For example, if you work on commission and your income varies from month-to-month, you’ll need to set up a budget that takes that into account.
Once you’ve worked with your budget for a few months you’ll find that you have more extra money than you thought possible and be able to pay down any debts that you have as well as put more money toward savings, an emergency fund and retirement as well.