How to Set Up a Monthly Budget
Creating a monthly budget is a great way to kick-start debt-free living and add to your savings. A budget is a great financial tool, whether you are looking to reduce your existing debt or simply gain a better understanding of your spending habits. It allows you to determine how much money you have available to spend, prioritize spending on what’s most important, and figure out how much money you have leftover each month.
How Much Money Do You Have?
Before you begin planning your monthly budget, it’s important to know how much money you make. If you have a regularly scheduled paycheque, it will be fairly simple to tally your monthly income. If you’re unsure of what your monthly funds amount to, a useful way to figure it out is to look back at your past earnings and establish an average monthly amount. Once you have an accurate idea of how much money you have on hand, you can begin to create a functional and realistic budget to put into action.
What Are Your Monthly Expenses?
Once you confirm your amount of income, the next step is to track your monthly expenses. Determining what you owe in relation to what you make allows you to plan your budget accordingly. Make a list of all your expenses and total the cost so you have a visual on the amount of money you need to cover all expenses. Record every purchase no matter how big or small. Keep in mind “fixed expenses” like rent or mortgage payments, car payments, loan payments and utilities. Also, make note of things like insurance and taxes so you don’t get caught unprepared.
Compare your expenses to your income and determine if they amount to less than your total income. If so, you can now put the difference aside for larger purchases, future savings and emergencies. Even a small amount helps. Continue to do so each month and watch your debt go down and/or your savings go up.
If your income is not enough to cover your current expenses, adjust your budget. See if there is any wasteful spending you can eliminate to free up additional cash. Do you tend to make impulse purchases, pay unnecessary fees or miss minimum payments? Review and see where you have room to make changes.
Determine a Set Timeline
Once you have a budget in place and are ready to kick-start it, decide on a timeline. Setting a date will give you a goal to work towards, and help you stick to the budget past the first month. Even if you plan to continue with the budget to maintain financial discipline long-term, setting a timeline helps to keep you on track. When you do reach your goal, it’s helpful to review where you are at and update the budget accordingly. If you have paid down debt, you may have now more disposable cash to put towards your savings plans.
Creating a realistic budget and sticking with it takes discipline but it’s well worth the effort. Monitoring and managing your finances will give you a greater sense of control, and make it easier to eliminate the debt that is holding you back.
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