A monthly budget is one of the better ways to keep on track with your finances. Perhaps you want to start a retirement fund or there is something that you wish to save for but can never find the money to put away. Tracking your spending and seeing where your money is actually going will open your eyes to how much overspending you are actually doing. Maybe some days you do not feel like making a lunch before you go to work and choose to eat out instead. All this extra spending adds up more quickly than you might realize, especially if you are choosing to eat out a few times each week. No matter where your money is going, if you cannot find a fraction of each paycheck to put into a savings account and pay down your bills, it may be time to start budgeting. Here are some simple guidelines to making a monthly budget.
- Know your net income
When making a budget it is important to know what your net income is and not just a guesstimate. If you are working for tips, commissions or for any other job that has variable pay, a calculated estimate is the best way to go. Look back at your records over the past three months to get the closest average. Your budget is based on your net income therefore it is best to get as close to knowing your net income as possible in order to have a successful budget.
- Calculate your fixed expenses
Fixed expenses are payments you have to make on a regular basis such as rent, a mortgage, insurance, phone bill, internet or car payments; anything that you have to pay monthly and whose payments are generally the same amount. Add all your fixed expenses to your budget and notice if the total amount of your fixed expenses is close to your net income. If this is the case then you may either need to reduce expenses by revising your phone or internet plans and cutting out what you do not need or earn a higher income by seeking extra employment.
- Debt Repayments
If you are like many other people, you have already taken out a loan and are currently repaying it. Whether it was a car loan, student loan or a line of credit, it still needs to be repaid. Do not forget to add this to your budget. Paying the loans minimum payment will not get you anywhere with todays interest fees, therefore you should calculate your own minimum payment to put towards your debt repayments each month. You can do this by determining the timeframe to which you wish to have your debts paid off and dividing your total debt by the amount of months you allotted yourself. Keep in mind that you may be able to pay more off your debt some months than others, opt to pay more than the minimum payment but if you come into a bind for any reason, the minimum payment will suffice.
It is commonly said that you should save 10% of your net income per week but first you have to decide what you want to save for and what type of savings account you want to put your money into. There are many things one would want to save for such as a vacation, retirement, car, home and the list goes on and on. Whatever you are saving for, you need to determine the most suitable account to deposit your money into. There are a number of places to put your savings such as a savings account, RRSP’s, stocks and bonds – each with their own risks and interest rates. Before you think about investing, be sure to have a readily available emergency fund for any misfortune that may arise unexpectedly. Determine what best suits your needs and lifestyle and go from there.
Keep in mind that your budget will not be constant from month to month as expenses and needs will fluctuate. Tracking your spending is one of the best ways to see what you actually spend your money on, which is basically everything that did not fall into the previously mentioned categories such as food, gas, coffee, movies, restaurants etc. The amount you spend on everything else may be hard to keep track of when starting a budget. Keep tabs of where this money is going and do your best to limit it.
Having a budget does not mean you cannot have an entertainment fund, however, it is the category in your budget that you can play with the most and allocate money to other, more important things. If you unnecessarily overspend one month, reduce the allotted amount from your entertainment category the next month.
Sit down and draw up a budget and try it out for a month. It might be spot on and need no adjustments but the reality is that you will have to play around and do some revision to get it just right. Do not get frustrated and do not give up, budgeting is worth it as it can help you make the most out of your income.