Want some quick and easy tips on how to get started budgeting? This post is for you. The people that have already decided they need to live on a budget, and just need to get started. If you're in need of inspiration as to why creating a budget is important, you should check out this post I wrote about the importance of having a budget.
1. Write Down Your Monthly Fixed Expenses
You’ll need to know what the total amount you’re currently committed to paying each month. Do this by enumerating each fixed expense you have… whether it gets taken directly out of your bank account, or you write a check for it. Things like your mortgage or rent payment, your credit card bill, your car payment, and so on. If some of these bills tend to fluctuate from month to month, take a moment to find out what the monthly average of that bill, for any given year.
2. Figure Out How Much You Can Save Each Month
The amount that you save and the amount that you spend each month are directly related. As a rule, 10% of your income should be tucked away into savings for unexpected costs and not to mention a sense of financial security. If you also want to save for retirement or a large purchase, the percentage you put away should be increased accordingly.
3. Calculate Your Monthly Take-Home Income
Whether you’re paid weekly, bi-weekly, monthly, or yearly…figure out how much you can count on bringing in each month. This is the amount that is left over after any government withholding, contributions to accounts, and other deductions. Maybe this is the same amount each time you get a paycheck, or maybe it's a yearly sum that you'll need to divide by 12 to arrive at an average.
4. Determine How Much Spending Money to Allot Yourself
This is what I called “Allowed Spending”. From your monthly take-home, subtract your monthly fixed expenses and the amount you are going to put into a savings account…this is how you arrive at the maximum amount that you can elect to spend that month. Divide that number by 4, and this will show you how much cash you can take out of the bank per week.
5. Decide If You Can Save More
Maybe your fixed expenses are relatively low, compared to your income, resulting in an exorbitant amount of allowed spending per week. Great! Now you have the option of increasing your savings per month. By committing that money to go automatically into a savings account, you’re assuring it wont get blown throughout the week just because you have it available in your wallet.
6. Create A Spreadsheet
Logging your income and expenses into a spreadsheet is a must. This will help you visualize the progress you’re making and keep you on track with spending and saving. Keep it as simple or complex as you want. Have Excel do the calculations for you, or enter them yourself. But just get started. You’ll be glad you did!