We all know a well-made budget is a building block of stable personal finances. How we go about making one is a little less obvious to most. Though it can be challenging, it’s worth the time you spend figuring out how you go about creating a budget. Once you realize you need to get on top of your day-to-day spending, there are some questions you’ll need to ask in order to make your task easier.
- What is your income & expenses?
When you sit down to tally up your budget, you need to know the exact numbers of your cash flow in black and white — or in some cases, red. Precision is key when you create a budget, so make sure you know how much money is coming down to the very cent. This includes your net income, as you won’t want to include your gross annual salary before taxes and other deductions are taken out of your pay. Luckily, with taxes just around the corner, this number will be easy to find.
You’ll also want to establish a detailed list of your expenses. The obvious regular costs are things like rent, utilities, groceries, insurance payments, and gas, but to get a complete understanding of your expenses, you need to go back into your accounts and review your past purchases. While you’re tallying these expenses, you’ll get a feel for those that are necessary and those frivolous, last-minute purchases that did nothing but spend your money.
- How can you prepare for unexpected expenses?
A successful budget is a realistic one. That includes knowing your past expenses won’t always represent your future ones. Sometimes, one-time events, repairs, purchases, and bills will come your way. These incidentals have the power to leech savings and throw your entire plan off course. If you don’t have a lot of extra cash in reserve, you may need to search out a loan for your non-recurring responsibility. When you realize you need to apply for a cash advance or line of credit, it’s natural to have a lot of questions. Luckily, you can find the answers to frequently asked questions about borrowing money online quickly and easily. There are a variety of lenders and financial advisors on the Internet publishing easy-to-read information for your convenience.
- What are the long and short term goals of your budget?
In order for your budget to work, it needs a purpose — and one you can commit to. At its most basic level, a financial plan is supposed to help you spend less than you earn. The savings you make by shaving off unnecessary purchases can motivate you to follow your strict spending rules. For some people, the goal is simply debt reduction. For others, it’s so they have enough cash set aside for a new home, a big trip, or retirement. Others still will use a budget so they can buy fun items as the need arises, like the new Xbox Scorpio or the latest pair of PUMA creepers. When you know you’re skipping takeout so you can go on holiday, your measures of personal austerity become a lot easier to handle.
- How can you stay accountable?
There’s a big difference between creating a working budget and living it. Though we all wish we had an iron will that allows us to follow our plans effortlessly, we don’t always have the fortitude to say no to that night out with friends or our late-night Amazon order. But don’t worry — there are ways to bolster your resolve and stick with your budget. Let your friends and family know you’re trying to save more. They might just join in on your wallet-friendly plans, which can help you avoid making purchases by association when you meet up for drinks, dinner, or other expensive events. Your smartphone can also be a handheld helper you keep in your back pocket. There are a variety of apps available to help you make financially smart decisions. Just check out PC Mag and Business Insider’s list of mobile finance apps to see which ones you’ll stand to benefit from most.
When you take the time to answer these four questions in full before you open up Excel, you have a better chance at creating a budget that works with your situation. So get detailed numbers, establish goals, identify contingency plans, and search out assistance. These steps can get you closer to save more and spending less successfully.