Are you tired of figuring out where your money goes each month? Do you struggle to stretch your income to the end of the month?
If you answered yes to either of the questions above, it’s time to think about budgeting.
This guide will introduce you to the basics of budgeting and give you tips for keeping more money in your bank account.
Why should you budget?
Following a budget helps you understand and control your spending. You can prioritize your expenses to make sure you have enough money to cover the essentials. More importantly, you can make sure you have money to pay those essential bills when they’re due.
But those aren’t the only reasons to start budgeting. When you have more control over your money, you can put money aside for savings, retirement, and emergencies to secure a better future.
To grow your savings
Whether you want to buy a home, take a lavish vacation, or send your children to college, a savings account is a good way to achieve your financial goals. A budget can help you consistently put money into savings and avoid using these funds for other expenses.
To improve your retirement
The more you save when you are young, the easier to retire it will be, which means you can stop working sooner. Creating a budget will help you save and invest enough money to benefit you in the future.
To prepare for emergencies
Cars break down, people get injured, and jobs don’t always last as long as you want them to. An emergency fund can help cover your bills without putting you in debt in these situations. The proper budget will help you maintain emergency savings, so it’s always there when you need it.
What do I need to create a budget?
The only things you need to create a budget are a budgeting method or template, your monthly income amount, and a list of your expenses. Once you have these items, follow these steps and your chosen method to create your budget.
1. Organize your expenses
The best way to order your expenses is to put them in two categories: needs and wants.
Your needs include housing, food, insurance, minimum debt payments, and utilities. If you require the expense to maintain a healthy life, it counts as a need.
Wants are items you can live without, even if they make life more comfortable such as: Cable; excess clothing; eating out; pets; entertainment; and any other unnecessary expenses.
2. Determine what you can afford
Next, compare your income to your expenses. Make sure you can cover the total amount of your “needs” costs every month. If not, we recommend meeting with a financial advisor to learn how to lower your expenses.
If you have money left over, put a portion towards savings. You can then use any excess income for wants.
3. Adjust your spending
Now that you know where your money is going, find ways to lower your monthly expenses. Consider canceling subscriptions or eating at home more. Even if it’s hard to let go, saving money now will improve your quality of life in the long run.
Are there free budgeting templates?
You can find free budgeting templates and spreadsheets online, including printable and digital options. Choose from budgeting techniques such as the popular 50/30/20 method or simply find a tool that can help you track your spending.
Budgeting is the first step to better financial health. Get more budgeting tips, savings strategies, and advice for financial well-being at the School of ACE.