If you’ve tried to create a budget in the past and failed, then you should read this post. Creating a budget isn’t as difficult as it may seem. Let me walk you through how to create a budget that fail-proof.
A budget is very important to have to control your finances, manage your money and live within your means. You need to create a budget as a way to control your money instead of allowing your money to control you.
What happens when when you get halfway through the week and start to run out of funds? You start controlling your spending so that you’ll have enough cash until the next payday, or worse, you have to suffer until you receive your next paycheck.
Do you really want to live like this? I didn’t think so. You must create a budget. I know that this may be a big hurdle to overcome. It can be hard to create a budget that you can actually stick to. It takes practice, but guess what? Your budget isn’t set in stone.
This process can take a few months to nail down. Please don’t feel like a failure if you don’t get it right the first time. This is totally normal.
The most important factor in being able to stay on budget may surprise you because it really doesn’t have much to do with your actual budget. It’s more of a safety net that prevents you from giving up when unexpected expenses come up. That safety net is your emergency savings.
If you don’t have emergency savings set up, then I suggest that you open an account today and add a set amount to contribute to it in your budget plan. How much should you have in your emergency fund? Many experts recommend saving three to six months of living expenses.
How to Create a Budget
When you create a budget, you need to think of all the expenses that you pay for on a regular basis. The easiest way to do this is by looking at a few months of bank statements. This way, you won’t forget to include everything that you need to when you create a budget.
With irregular bills, like quarterly payments, figure out how much you pay for this in a one-year period and divide that number by 12 to get the monthly payment amount to include when you create your budget.
Don’t forget to include line items to contribute to debt and an emergency fund, and anything else that you may be saving for. It’s also important to give yourself some wiggle room in your budget. If you give yourself a bit of padding for small unexpected expenses, you’ll be much more likely to stick to your budget.
Other things to consider when creating a budget…
Another key component to consider when creating your budget is including every single expense that you anticipate coming up so you won’t forget anything in your budget. This will going to take some reflection into your past as well as foreseeing what’s in your future.
Start by reflecting on things that you’ve had to pay for in the past that aren’t necessarily regular expenses. What irregular expenses have you had to pay for in the past that you never thought about until you needed to pay for it or received a bill in the mail?
Write down anything that you can remember that you were probably blindsided by in the past few years. Think in terms of those quarterly bills or yearly home maintenance items that always seem to sneak up on you.
Here are examples to help you get thinking…
Co-pays for yearly doctor’s visits
Yearly appliance maintenance
Yearly septic system cleaning/maintenance
Vehicle maintenance such as oil changes and replacement wipers or tires
Home weatherization projects
Annual membership fees and dues
Annual vet wellness checks for your pets
Gifts for birthdays, holidays and any other occasions that may arise throughout the year.
To make things easier when creating a budget, you can estimate how much these items will cost you, total them up and divide by 12 to come up with a monthly dollar amount that you should budget for.
Future Expenses That You Need To Budget For
Now, try to anticipate any expenses that might be in your future that you can prepare for. You don’t need a crystal ball for this, just some knowledge on the life expectancy of products that you may need to replace in the near future.
Take for instance your cell phone, have you had it for at least two years? If so, then unfortunately, you’ll probably need to replace it in the near future if it’s a necessity.
How about the roof of your home? Has it been over ten years since you installed new roofing? Is it starting to look a little shabby?
Here are some examples of items that you may need to budget for:
So, how do you budget for things that you’re not sure when or if you are going to need? Well, this can be a little tricky, but here is what I do. I try to anticipate the things that I feel may need replacing within the next two years. I total the replacement cost of those items, then divide that by 24 to come up with a monthly amount to budget.
Of course, something unexpected could need to be replaced that you didn’t plan for. But then again, there can also be other items that you expected to have to place that are still going strong.
Balancing your budget
Now that you have thought of every single expense that you need to create a budget for, compare the total of all the expenses to your total income. Do you bring in enough money to cover all your expenses?
If you said yes, great! Do you have a surplus? If you have debt, then this is the first expense that you should apply those additional funds to. Once your debt is paid, then you’ll have the freedom to use that money to save for other things that you have been wanting. Putting your money into a high-yielding money market account will allow you to grow your money even faster.
If you don’t make enough to cover all your expenses, then you’ll need to do some work to reduce your expenses, so that you’re able to live within your means.
By reducing your expenses, I don’t mean reducing the amount of money that you budgeted for these expenses without actually cutting back. This will definitely lead to failing at your budget. What you need to do is to find ways to reduce the actual cost of these expenses.
Here are some tips to reduce your monthly expenses:
First, take a look at any items that you pay for on a monthly basis that aren’t necessities. Are there any items that you can do without? Can you find ways to reduce the amounts that you pay monthly by downgrading or getting rid of altogether? Are there cheaper alternatives that will save you money?
Take your cell phone plan, for instance, you can downgrade your data plan to save money. You can even shop for a plan with a different carrier such as Republic Wireless which can save you anywhere between $30 & $50 each month.
Next, look at the expenses that may vary from month to month, such as groceries and entertainment. These are two areas that are very easy to cut back on if you’re trying to reduce expenses.
Instead of going out to dinner with friends every weekend, host a potluck at your home. Try taking your kids to places that are free, such as a local park or beach instead of paying for entertainment.
You can start meal planning to cut back on your food budget. Meal planning is one of my favorite ways to cut back on groceries because it’s so easy to do when you actually have a plan.
Reducing Fixed Expenses
Lastly, look at your fixed monthly expenses. They’re called fixed expenses because they’re items that you need or simply shouldn’t cut out when creating a budget. This doesn’t mean that you can’t look for less expensive alternatives.
A few key items are insurance premiums and electricity bills. These are both things that you need, but there is also some flexibility in how much you need to pay for them.
You can save money by shopping around for better insurance rates, reducing your deductible—if it makes sense to do so—or bundling your policies for a cheaper rate.
Electric bills can easily be reduced by simply turning down your thermostat a few degrees and installing LED lightbulbs. You can also use power strips to prevent wasting energy when electronics aren’t in use or line dry your laundry.
More Budget Tips
Keep a spending log
Keep a log of everything that you spend money on so that you can easily calculate your budget at the end of the month. You can do this on paper or using a spreadsheet program to track your expenses. There are also several apps that can help you make things easier. It really doesn’t matter which method you use, as long as you find a way that works best for you.
Get out of debt
Debt can be a real budget buster. You’ll be able to create a budget and stick to it much easier once you’re out of debt. It’ll allow you more wiggle room in your budget and will give you the freedom to save for things that are important to you and your family. Check out How to Get Out of Debt Fast Even When You’re Broke for some great tips.
Make automate payments
Automating payments is one of the easiest ways to save both money and time every month. Simply sign up for auto-pay through each of one of the companies that you do business with. They will automatically withdraw payments every month. You can also do this through your bank.
This is a one time set up. Then, you’ll be good to go and you’ll save time and money every single month. In addition, you will never miss or make a late payment which will save you from late fees and interest rate hikes.
Start a side hustle
Bringing in extra income with a side hustle is a good way to plug any gaps when creating a budget. Especially if you don’t bring in enough money to cover your expenses. It will also help you pay off debt faster to free up more money or allow you to contribute to your emergency savings.
Here are 24 Side Hustle Ideas to help you get started.
We all need to create a budget to be in control of our money. The key is to create a budget that you can live with. If you don’t succeed the first time, don’t give up. Keep at it, analyze what didn’t work and adjust your budget from there.
Before you know it, you’ll be budgeting like a pro and you will become a master of your money instead of being controlled by it.
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