If you’re looking to get your financial house in order, there are five simple steps you can take to create a budget for your home. Budgets help keep your bills and expenses in check, so you can meet your financial goals and live an independent life. Learning to create a budget is helpful for everyone, regardless of age. So, whether you’re just getting started in life or need help examining your expenses and making some changes, the following steps to creating a budget will get you started down the right path.
1. Determine your expenses
Sit down with your credit card bills and bank statements to determine exactly what your expenses are. Most people will have housing, food, utilities, car payment, gas and miscellaneous. You may also have school loans or other reoccurring debts to account for.
Don’t forget discretionary spending, such as coffee, manicures, clothing, etc. It’s important to really get a good idea of what you spend your money on. Use bank statements and credit card bills to help pinpoint your expenses on a month-to-month basis.
2. Determine your income
What is your after-tax take home pay. If your work fluctuates its hours, you might need to take a monthly average. Besides taxes, other things like health insurance and retirement savings that are automatically deducted from your paycheck should not be included in your income.
3. Calculate your income minus your expenses
If the number is positive, you’re doing good. You’re making more than you spend, which is what you want. If the number is negative, it’s time to take a look at your expenses. In particular, pay attention to discretionary spending as outlined in the first step. This is the first place that most people start trimming their budgets, though having no discretionary money isn’t the goal either – everyone needs to have a little bit of fun in life.
4. Determine where you can trim your budget
This is an especially important step if the number in item 3 was negative. Often, by eating out less and just spending less money on wants rather than needs you can trim your budget enough to fit within your means.
5. Revisit your budget every so often
As circumstances change and you get raises or pay off debts, your budget will change. Even inflation can cause you to need to make adjustments in things like your grocery budget. It’s perfectly fine and normal to tweak your budget every so often to make it work for you and your lifestyle.
Creating a budget doesn’t have to be difficult. Being aware of your expenses and what you typically spend extra money on will help you get your spending in check to create a healthier financial picture.