Create a New Year Budget
If the word “budget” isn’t in your vocabulary, it’s time to understand why you need one. When you begin steps to create a budget, you’ll control your money better and have peace of mind as your savings grows.
Determine your goals
The first step to create a family budget is setting long-term and short-term goals. Be realistic: Short-term goals shouldn’t take longer than a year. As an example, a short-term goal is to pay off a credit card or save for a summer vacation. A long-term goal, such as saving for a down payment on a car, will take much longer to achieve. As things change in your life, you can update this list.
Know your monthly net income amount
Do you know exactly how much money you take home every month? Don’t fall into the trap of overspending because you don’t know this amount before you pay your set monthly bills. You may net $2,000 a month, but if you haven’t subtracted Social Security taxes or 401(k) deductions that are set amounts deducted from your paycheck every month, you aren’t using the correct figure. Your net income is your final take-home pay. This is the figure you must use to design a budget.
Create two spending categories: fixed and variable expenses. Your mortgage or car payments are fixed expenses because the monthly amounts don’t change. Variable expenses that change every month include gasoline, entertainment and food purchases. The first step to make a budget is to create a record of exactly how you spend your money for both fixed and variable expenses. Some banks offer online budget programs where you can create a personal budget spreadsheet to help organize this process.
Divide your spending
Use three general categories: needs, savings and wants. Your “needs” would include fixed and variable amounts that are essential in your life. “Savings” would encompass an emergency fund, retirement accounts, etc. Everything else falls under “wants.”
This can be a difficult step, but it’s important that you force yourself to record the details of your variable (discretionary) spending. Tuck a small notepad in your purse or car and every day get in the habit of writing down the amounts of all cash purchases. Another good idea is to save all your receipts, and add them up at the end of the month. If you use debit and credit cards, you can follow other variable expenses this way, too. At the end of the month, you’ll be ready to categorize your spending.
Once you have determined your fixed expenses, you can customize all variable expenses. This is the step to create a budget where you have flexibility and common sense should be your guide. You might fall in love with that dress you just saw, but do you really need it? When you resist unnecessary expenditures, you’ll have more money for the things you really do need and save for the future.