Building your first budget
Get a clear picture of money coming in and money going out
One of the most important things we learn in school is mathematics, but unless we’re going into sciences, we aren’t taught how to use numbers in any meaningful way. Financial mathematics is rarely covered, leaving most Millenials not knowing how to build and carry through on a budget.
I’ve attempted to list 6 essential steps needed for basic budget management. It’s easier to start with the bigger items and then work your way into the specifics.
Some use paper. I find using excel to be the most useful as I can list the information horizontally and the dates vertically. I place the name of the topic in the top cells.
I recommend speaking to an expert.
Step 1: List monthly income.
When you’re working a single job figuring out your monthly income is pretty simple. Look at your paycheck. Your net income is the figure that should appear in your budget.
If you’re working an hourly salary (Freelance work), take a look at the last six months to get an average of how many hours you work to figure out your income.
Figure in tax where necessary and try and record precisely how much you’re bringing in every month. Put this under Income on the spreadsheet.
Step 2: List fixed expenses.
Fixed expenses are those that are more or less inflexible. Rent or mortgage payments, loans, student loans, and insurance costs figure into this column.
I like to keep each item separate when I place them into your spreadsheet.
Step 3: List variable expenses.
There’s generally some fluctuation in your expenses, things like gas, utilities, groceries, and heating/cooling (As temperatures change all the time this number is constantly changing. It’s a good idea to keep track of what months the expenses go up and when they go down.)These all tend to come out a slightly different number every month.
You can check your receipts to figure out how much you are spending on each expense or review your credit card statements.
The last three months of expenses should provide a good sample of your spending.
Use an average of whatever number you’ve come up with in your budget.
Step 4: Consider the model budget.
You can split a model budget into three categories; Needs, Wants, and Savings.receipt
To figure out the percentages you want to put into each, I recommend consulting a financial planner. Most financial advisors advise you to follow the 50/30/20 model for budgeting. (50% for needs, 30% for wants, and 20% for savings). You may find that a different distribution percent works better for you.
Step 5: Keeping track of your budget
It’s vitally important that you keep track of your expenses from here on out. If your bank provides you with a detailed statement of expenditures, this can be made easier, but since cash is often used or we forget what item we bought, I suggest keeping receipts.
Keep them in your pocket or purse, and when you get home, put them in a drawer/box. At the end of the month, you’ll have an accurate tally of how much you spent and on what you spent it. If you want to keep track of this sort of thing over some time, staple the receipts together, put a month and year on the back and store them.
Step 6: Trim your expenses.
If your expenses outweigh your income, it's time to look for ways to look for things you can do without. This is the part of budgeting that many find most challenging, separating the things we need from the things we NEED.
Frequently, people find themselves spending money on superfluous things because of how they want to be perceived.
You can also look at your various cell phone providers and internet coverage to see if you can cut down on costs.
These steps should help start you in the right direction.