6 Simple Steps To Planning A Budget

Most of us know that having a budget is important, but creating a budget that works can be a different story. Having a budget will allow you to keep track of your finances and let you see first hand where your money going each month. If you don’t have a budget you might be surprised to see where most of your money goes. A budget can help you save for future purchases, help you create an emergency fund and can help you establish good credit. The article provides 6 simple steps to help you plan your budget.

1. Set Savings Goals: The first step is to come up with a savings goal. Determine what it is that you really want now and what you want down the road. This will give you a clear picture of your goals and from there you will be more likely to stay on track. You can use your goals as a reminder of where you want to be financially. Write down your goals so you can always reference them when needed.
2. Determine Your Income: For this step you are going to list each source of income you have, like jobs, scholarships, loans, and even gifts. Be sure to use after-tax amounts and don’t include unreliable sources, like if you plan on selling something or if someone owes you money. Its really important to be clear about what your actual income is.
3. Outline Total Monthly Expenses: Make a complete list of all your monthly expenses. Here are some examples of what your list might include.
   • Fixed Expenses: loan payments, rent, car insurance, tuition credit card payments.
   • Flexible expenses: phone and Internet bills, groceries, clothes, and entertainment.
   • Include an amount to cover any unplanned expenses. Then add it all up. That’s your total monthly spending.

   When you list out your expenses, this is a good time to note if you have expenses you can reduce. Sometimes it just take you seeing exactly what you pay to get you to think about reducing a bill.

4. Income Vs. Expenses: What you want to do here is get a clear picture of how much is going out compared to how much your bringing in. You need to subtract your expenses from your income. This is really where creating your budget begins. You want to get a realistic picture of how much you make compared to your monthly expenses. If less than 5% of your income is left, or you’re in the negative then you have to cut back on your spending. If If you discover you need to cut back then start with things that are not necessities like your cable bill, cell phone plan, entertainment. This is also when you might need to consider increasing your income.
5. Set Aside for Savings: Your budget really needs to include some sort of emergency fund. The sooner you start building a savings account, the better. You’ll be surprised how fast it grows and how much of a stress relief it is to know you have some extra money in the bank. Not to mention, having a safety net like this will help you with unexpected costs so they don’t throw your budget off.
6. Maintain Your Budget: This is the most important part and the hardest part. If you have never used a budget before it might be a challenge. When staying on track with your budget is difficult, this is a good time to reference back to the goals you have written down. Take a look at your monthly expenses, especially if your circumstances or income have changed. Stay on track and cut back where you can because in the end it will be worth it. If you are a prepaid card user, you can use the online bill pay as a way to help you stay on track and make timely payments.