Creating a successful budget is a dilemma everyone has faced at least once in their life. But successful budgeting doesn’t have to be difficult or time consuming if you’re determined and start following successful budgeting tips.
A personal budget is a summary of your income and expenses over a defined period, which is usually one month. A budget allows you to see your income – or how much money you expect to bring in – compared to all your required expenses, such as your mortgage or rent, insurance, utilities, and any non-necessary spending or discretionary expenses.
In order to achieve your financial goals, follow the steps below to create and maintain a successful budget.
Step 1: Gather financial information
Prior to beginning with the actual budgeting process, it’s important to know all the pieces of information regarding your income and expenses. Therefore, try to gather as much information as possible so you can determine a monthly average. This information should include bank statements, utility bills, investment accounts, credit card bills, receipts (preferably from the last three months), pay stubs, and any mortgage or loan statements.
Step 2: Determine your income
You can determine your income by starting with how much money you make after-tax every month. If you have other sources of income such as child support, alimony, and Social Security benefits, include them as well.
If you have a variable income, it’s recommended that you use the income from the lowest-earning month in the past year.
Step 3: Identify expenses
After you’ve determined your income, write down all your expenses in a given month. Your list might include the following payments: mortgage, rent, various loans, utilities, groceries, insurance, medical expenses, childcare, entertainment, eating out, transportation costs, money you put into savings, and so on.
Financial information you gathered in step one will help you track your expenses.
Step 4: Identify fixed and variable expenses
What are your fixed expenses, and what are your variable expenses? Fixed expenses are those that you have to pay each month (mortgage, rent, utilities, etc.); variable expenses are those that change each month (entertainment, groceries, etc.). The point here is to assign an amount of money you expect to spend for both fixed and variable expenses. Again, use the financial information you gathered in step one to estimate your expenses.
Step 5: Calculate the difference
Once you calculate the difference between your income and your expenses, you’ll see where you stand financially. If you have an income that is higher than your expenses, that’s good news. This means that any extra cash can be used for different areas of your budget, such as retirement savings, debt repayment, or an emergency fund.
On the other hand, if your expenses are higher than your income, then you either need to spend less or try to make more money.
Step 6: Monitor your budget
After you’ve set your budget, it’s important to monitor it and track your spending every day. By doing this, you can prevent yourself from spending more than necessary. The ultimate goal of your budget is to keep your expenses equal to or lower than your monthly income.
If you’ve lived without having a budget, give yourself some time to adjust to the new way you handle your finances. If you’ve created your budget and you need guidance from a reliable bank, contact the experts at Prudential Bank: 215-755-1500. We’ll be glad to help you with your budget needs.