How to make a budget for the first time?
Budgeting is a really good way to improve one’s financial health. It helps comprehend the type of expenditures, reduce debts, better manage money, and commence savings for a better future.
If you do not know how to make a budget, these ‘budget for beginner’ tips can help you achieve an improved financial future.
How to begin?
You first need to calculate all the income received by you after taxes. This can include your paycheck, interest, and/or a trust fund, etc. Make a record of the exact net income that you get each month.
List all the fixed expenditures. These can include varied loans, rent, and different household expenses, etc. Such expenses usually tend to remain the same every month, unless there are late payment charges. It may be noted that a budget is key to timely payment of bills and avoiding penalty fees.
List the variable monthly expenditures. Such expenses include utility bills like gas, power, etc.; household products like personal grooming items, groceries, etc.; and other bills like credit card bills, etc. You may use the bills from the past 2-3 months of such variable expenditures to calculate an amount for it and add it to the budget.
Making the budget
One of the most popular formats of a budget is the 50/30/20 formula. It means that 50 percent of the net income is budgeted for essentials, 30 percent for wants, and 20 percent for savings. You can also opt for any other system as long as that system does not take up a lot of your time and is not too complex.
It is important to remember to always cover the essentials in the budget. The remaining income can be divided between wants and savings. Wants can include activities like shopping, movies, eating out, etc. Food or groceries is something that can either be clubbed in essentials or wants. Keep a record of the expenses on groceries and monthly wants over a period of 2-3 months to calculate the amount that needs to be set aside in the budget.
If, after preparing the budget you find that the expenses are more than the monthly net income, then you will need to look for different ways in which you can cut down on non-essential expenditures such as going out partying, etc. Another way to reduce expenses is by decreasing the cost of the essentials. For example, you can check your internet, phone, and TV bills to see if the monthly costs of each of them can be lowered; you may talk to the service provider for additional help on lowering costs.
Another key thing that you should never forget to include in the budget is varied debt like student loans, credit card bills, mortgage, auto loans, personal loans, etc. Budget and plan to erase credit card debt fully; this way you will not spend excess money on paying increased interest charges. You may also do a balance transfer to another new card with zero interest in the first year to lower the interest charges.