Have you little idea of where your money goes? Know that only 40 percent of families in America use and follow a monthly budget. This means that many families may be wasting money on unnecessary expenses that could be used toward getting out of debt or saving for retirement. Get more familiar with monthly expenses and stop overdrawing on checking accounts or making late payments on regular bills.
Use these tips to get started on developing a practical budget today.
Calculate Your Savings
It is possible to have savings and funds spread across a variety of financial instruments, in addition to the typical checking or savings account. Compile a list of investment accounts, a 401K or other such accounts. Note how much money is currently in every account, in addition to associated expenses and interest rates. This can help individuals create an estimation of net worth and decide which vehicles may be the most profitable in reaching their long-term savings and investment goals.
Assess Your Income
In order to know how much may be spent on expenses and wants and put toward savings, it is important to know how much income is available monthly. Salaried employers may find this easier to do than those who are paid on an hourly basis or are self-employed. Those who get paid less regularly may want to use the average of the previous 12 months of income.
Determine Any Debt
Write down any recurring debt payments. This may include mortgage payments, car loans, credit card payments, school loans and other forms of ongoing and regular payments that may need to be paid. Know how much needs to paid on each account in total and the minimum monthly payment. Subtract the total debt amount from the income and any financial resources to determine net worth. Those who may be starting out in life may have a negative net worth.
Understand Average Monthly Expenses
Keep receipts, bills and other expenses that come up during a month-long period. Use these bills to create categories for regular monthly expenses. Look over the past few months to determine the average amount that can be applied to expected monthly expenses in each category.
Setting Up a Budget
There are many ways to get started on creating a budget. Some may want to use a ledger and excel spreadsheet, others may want to use online tools including Mvelopes, Mint or You Need a Budget. An envelope budgeting system may be useful for those who may need to stay on track with a cash-based system.
Individuals may appreciate the convenience of online budgeting sites but others may want to write out their budget for extra flexibility. Once all of the information is entered, it will be easy to see how one may be overspending. At this point, individuals can scale back on unnecessary expenses in order to pay down debt or put money away into savings accounts such as a Roth IRA or 529 college savings plan.
Track and Adapt
It may be necessary to make changes as one goes along based on current realities. A pay cut or increasing food prices may force one to adjust category amounts. Paying down debt or getting a pay raise may provide additional income to save or use toward expenses. Tracking and monitoring expenses can help individuals make sounder financial decisions and feel secure in their ability to tackle expenses, build up an emergency fund and save for the future.