Every great financial plan starts with a sound budget plan. If you are trying to pay off bills, saving to buy a new house or pay for your kid’s college tuition fee, planning your budget can help you achieve your goal. But how to do that? That’s what we are here for. Budget planning needs to get started with a clear and focused mind. We will explain you how to do that in 5 easy steps so you can plan your expenses the smartest way possible.
First and foremost, grab a pen and page and write down how much money you make after paying tax each month. If your compensation keeps fluctuating, taking out average will be okay but the more accurate your figure is, the stronger your budget plan will be. This will also help you to avoid any last minute adversities. Take into account other income sources like if you are getting paid for part-time online job, alimony, interest, dividends and rental income. Now that you know your income, you can review where it is going.
2.Calculate Your Expenses
Let’s break up your monthly spend into specific buckets. For many people, this will be grouped into housing, transportation, facilities, groceries, food (exclude restaurants). After those, you see your variable expenses which may include, dining out, vacation, weekend entertainment, going to salon, shopping etc. in short, it is important to keep an eye on all streams of expenses so you can devise a healthy budget plan. Remember, some expenses may not bill monthly so review prior months to get a holistic picture of your monthly. This will provide you with an estimate amount and even you vary your expenses, this will still balance out your budget plan.
3.Calculate The Difference
If your monthly spend is already greater than your income, you have to options two options to consider here. Either make money or spend less. The latter sounds more actionable because normally, it is easier to cut back on spending your expenses than increasing your monthly income. Look back at your budget and see what can be reduced. It is not necessary to remove the expense but you can also replace it with something less expensive. For example, if you are using some expensive cereal as your breakfast, you can start having less expensive cereal. Other than that, you have the option to dine out less, buy few new clothes if you are spending more than you earn. Are you happy with the amount you are saving? If not, what else can be eliminated?
4.Plan What You Can Do with Your Savings
If you have saved the amount you desired to achieve, Congratulations! Now, what is the best thing to do with it? If you have high interest debt, it is best to pay it off. You may even consolidate that debt at a lower interest rate to save more and pay off faster. A good target is to set a savings goal of accumulating $1000 dollar in your saving account then build that into a 3-month emergency fund. If you wish to target a percentage of your income, try starting at 5% or 10% and then grow your savings rate overtime.
5.Make It a Habit
Make sure you stay determined to review your budget every two weeks. This will help you understand how your spend is tracking, what needs to be readjusted and how are you keeping up with your financial goals.
Good luck and remember that if done right, you can smartly plan your budget with nothing to worry about.
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