August 05, 2022
Learning how to budget is the first step toward a successful financial future.
Why should you budget?
Organizing a strong budget is going to help you manage your money more efficiently. It helps you know exactly how much money you get, save, and spend in a given time period so that you can balance your income and expenses and reach your financial goals. More specifically if you feel like any of the following applies to you, read through this article to see how you can improve your financial situation.
A budget is important if you:
- don’t know where your money is going
- are having difficulty paying off debt
- feel overwhelmed by your financial situation
- feel like you don’t have control over your money
- are having difficulty saving money
- want to make the most out of your income
How to create a budget
Creating a budget can help you solve all of the issues mentioned above and even bring more benefits. You may be able to invest some additional money, reduce stress, be able to put your money towards what really matters to you, and so on. Let’s get into how you create a budget
Step 1 – List your income, savings, and expenses
The most important thing when creating a budget is understanding how much money you make, and how much you spend.
First, begin by listing all your income and break it down into a period that makes sense to you; we recommend doing it monthly. Ask yourself these questions:
What are your sources of income?
What is your paycheck after taxes for each?
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Example:
JOB 1 – net $3,500 per month
JOB 2 – net $750 per month
Total net income = $4,250 per month
Next, you want to list all of your expenses over the same period. Be sure to be specific:
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Example:
MORTGAGE -- $2,500 per month
FOOD – $300 per month
UTILITIES -- $150 per month
CAR PAYMENT -- $550 per month
FOOD – $300 per month
PHONE BILL – $70 per month
CLOTHING -- $250 per month
ENTERTAINMENT -- $250 per month
ALL SUBSCRIPTIONS -- $50 per month
Total expenses per month = $4,120
Then, lastly, you want to list your savings for the month:
Net income – Expenses = Savings
Savings = $4,250 - $4,120 = $130
For this example, your savings per month are a mere $130, which may seem quite scary. Let’s see how we can fix this.
Step 2 – Cutting Costs
As you may note, the list of expenses is a lot longer than the l of income—don’t worry, this is the same for everybody. Though it may seem difficult to increase your income, it is easier to cut down on your expenses.
Using the example above, there are some expenses that you won’t be able to change, like your mortgage and car payment, your utility and phone bill, and arguably your food expenses. But, that still leaves us with $550 of expenses to work around. When you’ve listed all your expenses, you can now evaluate where you should cut them. Perhaps you don’t need to spend $250 on clothes every month, so you can decrease your spending to $150. You may also not want to spend so much on entertainment, so let’s drop that amount to $200. Your last option is to cut some subscriptions. Which ones are you reallyusing? I know it may seem difficult, but the others must go. Let’s drop that down to $30 per month.
As you can see, after listing all the expenses, you were able to evaluate those that are the most important and those where you can reduce the payments. In doing so, you were able to increase your savings from $130 per month to $300 per month. In one year, that means you would save $3,600.
Step 3 – Stay Disciplined
The only way a budget will work is if you stay disciplined about it. In combining all of the steps above, you are now able to create a budget. You know exactly how much you make and where it is coming from; you also know how much you spend and where it is going, so you can now adjust your spending to fit your financial goals. That’s the whole point of budgeting... you need to adjust your spending habits to fit your income and that’s how you can grow your savings. As you’ll note, not much changed in the example above; all you did was reduce your spending on clothes, entertainment, and subscriptions, but you still budgeted enough money every month to enjoy those things in the same way.
Budgeting may seem like a complicated thing to do, but ultimately it is not. Though your financial situation may be a lot more complex than the example above, the basics of budgeting remain the same for everyone, and they are listed in the 3-step process above. If you struggle at any of these, we suggest you consult online resources that offer templates and advice on how to budget for different situations. Or, if you have a Floria loan and are having difficulty fitting it into your budget, call us at (647) 715 5300 and one of our team members would gladly assist you.