How to Create a Budget if You've Never Had One Before
Creating a budget doesn't have to be rocket science.
Having a budget is essential to help with financial goals. You can see how much you're spending and prevent getting into further debt. However, the idea of creating one is daunting to those who have never bothered in the past. Some budgets can be really simple, but others are complicated and time consuming. You don't want it to be the latter so here are some tips on how to create a budget, even if you've never had one before.
Look Back Over Your Previous Spending
Take a look back over the spending from the past three months to a year. The longer the better, so you get a good idea of smaller one-off purchases as well as regular ones. You want to make a list of all the purchases you make and the amount of them. It is worth having three columns for each expenditure: the place, the amount and the item. You can assess how necessary the purchases were. Add up the total amount.
Now add a fourth column for the category of spending. Are they for "housing?" Maybe they fall into the "bills" category or "special purchases" for birthday or Christmas presents. By tracking the category, you will see places to cut spending if you need to easier.
How much money do you get each month to spend?
Consider Your Monthly Income
To avoid overspending, you need to think about the amount of money going into your account. Look over the previous account details to help with this. You want to think about any benefit payments, your paycheck, and any other regular payments that you receive. Don't include one-off inheritances or gifts as you can't rely on them happening again.
Use your monthly income as the maximum amount that you are allowed to spend. If your expenditures recently have been over your monthly income, then you need to start looking at ways to cut back. If it's been on track or less, you need to look at ways to keep it like that.
Split Up Your Monthly Income
Now split up where you will spend your money. Focus on the necessities first, like your rent/mortgage, utility bills and food costs. Now you can use the rest on your luxuries, your savings and getting out of any debt you're in. You need to prioritize them to suit your needs. It's best to clear the debt before focusing on large savings, but spare some cash for an emergency fund. The luxuries are best coming last.
Look for ways to trim down your expenses. For example, do you really need all the brand-name products at the grocery store? Could you reduce your heating bills? Keep your targeted spending realistic, though. If you cut back too much, you'll start to feel down about it and it could cause overspending as you rebel against your own budget.
Now you know how to create a budget. It's relatively simple when you consider it this way. The hardest part is often sticking to it. You'll find the first couple of months the hardest, but you will soon get yourself on track and find that it was nothing to ever panic about.
Alexandria Ingham is a freelance writer with experience in technology, personal finance and family-friendly activities.