Was one of your New Year’s resolutions to start saving money, or to start spending a little more wisely? The best way to save money for you and your family’s future is to create a budget.
Most people cringe at the thought of sitting down and going over their finances, but budgeting doesn’t have to be scary. Even if you think you are in good financial standing you may be shocked when you sit down and go through the numbers. A budget will help you monitor your flow of money and get rid of unnecessary spending, saving you money each month, so what’s there to lose?
Here are 7 easy steps to begin setting your budget.
Step 1. Sit Down Together
Get together with your significant other to calculate the total amount of money you each have coming in each month. From there you will be able to more accurately know where you can cut spending and start saving.
Step 2. Find Out Your Essential Spending Costs
When you begin to sit through and work out your family’s budget, it’s important to start by writing out all of the essential spending your family does each month. This will include payments for your mortgage, rent, bills, insurance, auto loans, student loans, schooling, daycare, food, prescriptions, and essential groceries and clothing.
Step 3. Find Out Your Non-Essential Spending Costs
Next, you will write all costs that may not be essential, but you would like to keep putting money towards them each month. If you have any non-essential spending that you don’t use anymore this would be a good time to start cutting that spending out to help you save. Non-essential monthly spending could include just about anything, like streaming services- Netflix, Hulu, Spotify, or Disney +, etc., subscription and other services like Amazon Prime, Adobe Creative Suite, Dollar Shave Club, Stitch Fix, etc. It could also include any club or gym memberships, extracurriculars, etc.
Step 4. Set Aside Extra Cash to Pay off Debts
By paying off your debts more quickly you can get yourself in better financial standing for the future. To do this start, use the money that is left that you have calculated from your essential and non-essential spending, and start by paying a little above the average monthly payment on your credit cards. Do this every month until you get the balance low enough to completely pay them off. It doesn’t have to be much, a few extra dollars here and there will still get you closer to paying debt off than the minimum payment. You can also do this with your other loans, like your car or home, as well. You can either do this with multiple debts or choose one debt to pay off at a time; it depends on you and your preference and financial situation.
Step 5. Set a Limit for Extra Spending
Setting Limits may be hard at first, but when you sit down and calculate your average cost at the grocery store or your weekly retail therapy, you may find out that you are overspending. Set a reasonable limit for yourself when you go shopping, one that fits into your budget, and stick to it. Bye overspending.
Step 6. Leave Yourself Some Room
A common mistake in budgeting is not leaving room for events that take place throughout the year like, Holidays, Birthdays, Weddings, Back to School, Baby Showers, etc. If you have an event coming up, know to keep a little bit of extra money out to put it towards. Even if the event is your family going out to eat once a month, remember to leave yourself some room. One of the best ways to do this without overspending is to take out a cash deposit and put it in an envelope to use on that date. That way it is out of your account, you have a spending limit, and the rest can go towards your savings.
Step 7. Determine How Much You Can Save
Once you have all of your spending calculated, you can then determine how much you can save each month. Assuming that some of your payment already goes into your 401k, it’s important to also contribute a personal savings account every month or every paycheck. Think of your personal savings account as a nest-egg for you and your family in case of emergencies. It is wise to contribute enough money into this account until you have reached an amount that could support your family’s essential needs for at least 6 months. Do not pull out of this account.
If you would like to start a savings account that you want to attribute money towards each month for additional life events like college, home-ownership, your own wedding, engagement rings, renovations, family trips, vacations, etc. open a new account, a new one that doesn’t include the nest-egg savings you have built, and start contributing what you can until you have reached your goal.
BONUS TIP: Track Your Spending
To stay on track is to monitor your spending. You should track every dollar moving in and out of your account. There are hundreds of budgeting apps that can help you, or you could just make it a point to look at your online banking at the end of each day. Tracking all of the cash flow in real-time will help you cut out costs that aren’t necessary or that you may not use as often as you think you do. This will also help you monitor your account for any suspicious purchases or accidental charges.
Budgeting doesn’t have to be scary, and if you get the math wrong on your first month that’s okay. Fix some spending/saving and try again, and don’t be afraid to make adjustments where they are needed. It’s your money, find whatever works for you and your family.
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