Fewer Americans are budgeting their finances this year than in previous years.
But one of the biggest reasons people don't have budgets is because they don't know how to stick to one after they create it.
Are you in the same boat? Make sure you keep reading below to learn some tips about budgeting for beginners.
Figure out Your After-Tax Income
Before you can create a budget, you have to figure out how much money you make every year. Make sure you subtract tax from your overall net earnings. Otherwise, you'll end up having less money than you think.
And don't forget to add any extra funds you get outside of your regular job. This might include things like alimony, child support, or even garage sales.
Calculate Your Expenses
Now you have to find out how much money you spend in a normal month.
Go back through your bank statements and add all the money you spent for the last six to 12 months. And take your time. Missing a single bill can throw off the rest of your budgeting plan.
As you calculate your expenses, make sure you leave room for unexpected expenses. This can include things like car repairs and doctors appointments.
Divvy out the Money
Once you know how much money you make and how much money you spend, you can start creating a budget. While you should adjust your budget to meet your needs, most budgets should look something like this.
50% of Your Income Goes to Needs
You should set aside at least 50% of your total income to cover necessary expenses. In other words, you should spend most of your income on things like:
Minimum loan payments (only minimum)
Again, these needs might vary from person to person, but they should be the things you can't live without.
30% of Your Income Goes to Wants
Creating a budget doesn't mean you have to cut out all the "for fun" money. In fact, people who spend money on an exciting experience or with someone they love tend to be happier than people who don't.
It's okay to spend money on that concert you want to go to or on a new smartphone. But don't go overboard.
If you want something expensive, save up for it over time instead of spending too much money at once and—potentially—going into debt.
20% of Your Income Goes to Saving/Debt Repayment
You should save the last 20% of your budget for savings and debt repayment.
Never overlook savings. Your life will be a lot harder later if you do.
All minimum loan payments should go under your necessary expenses. But the best and fastest way to pay off your debts is to pay more than the required minimum. So some of this 20% should be put toward your current, smallest debt.
Keep Track of What You Spend
It's hard to stick to a budget if you don't know how much you're spending and on what. So make sure you keep track of all the money that leaves your bank account.
This will allow you to keep yourself accountable and stay on track.
If you're worried you'll forget to track your spending, you should consider using a planner to remind you.
Budgeting for Beginners: Sticking to Your Spending Plan
If you've never budgeted before, use these tips about budgeting for beginners to get started. Figure out your income, calculate your expenses, and divide up your money. And don't forget to keep track of what you're spending at all times.
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