How to set up a budget that works for your lifestyle
One of the biggest mistakes people make in their financial lives in not having a budget. While you would never start out on a long road trip without a map to guide you many people attempt to navigate their financial lives with no idea where they are going. They simply assume that since they have money coming in and bills being paid that they are doing all right. This type of thinking is the same thing as assuming you know where a particular landmark is (without ever being there) and just driving until you reach it. A budget can work as a map to guide you through financial pitfalls and more importantly help you reach the financial goals you have set up for yourself. While everyone's financial needs are different there are basic budgeting strategies that every one can use. Here is what you need to know about how to set up a budget that works for your lifestyle-
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- Start with a pre-made budget worksheet. There are many of these online and this can help you know what categories you will be working with without having to think of all them yourself. You can add or delete budget categories as fits your particular lifestyle. Be sure to think about your hobbies and your habits and add categories for these expenses.
- Go through your check book or bills for the last two to three months. This will help you see where the majority of your money is going.
- Next you need to go through your pay stubs and calculate your average monthly gross pay. In addition you need to do the same for any interest income, dividends, bonuses, or other miscellaneous income.
- For each expense category, try to determine a budget amount that will realistically reflect your actual expenses while setting targeted spending levels that will enable you to save money. Do not try to fit your expenses into somebody else's budget categories you must tailor the categories to fit your own situation and lifestyle.
- Once you are comfortable with your expense categories and budgeted amounts, then you need to enter expenditures from your checkbook from the last month. In order to formulate your budget you need to keep track of cash expenditures throughout the month and total and categorize these at the end of each month.
- Then to see where you are in your budget you need to subtotal the income and expense categories. The next step is to subtract the total expenses from the total income to arrive at your net income. If the final number is negative, your expenses are greater than your income. You will need to reevaluate your spending habits in regards to your lifestyle. Remember your budget is to help you bring your expenses in line with your income not with your desired lifestyle. If you have a positive net income, financial experts advise you to transfer most of it to a savings or investment account at the end of each month. Extra cash that is left in a regular checking account has a way of getting spent.
- After you have tracked your actual spending for a month or two, you will want to analyze your spending to identify where you can comfortably make cuts if need be. Once you have got the budgeting process in place, you can then take an in-depth look at your largest spending categories and brainstorm about ways to reduce spending in specific categories, and set realistic goals.
- Be sure to update your budget and expenses monthly because this only works if it is an ongoing process. This works best if you think of your budget as a tool to help you get out of debt and save money, not as a financial diet.
