For most people, their financial health depends on having some type of budget. Even if you’re not living paycheck to paycheck, having a budget can help you ensure that you’re not overspending in areas that aren’t necessary and that you’re saving or investing appropriately. But when you are having a hard time paying your bills each month or you find yourself getting easily into a lot of debt, having a budget can help immensely. So to help ensure that you’re not over-budgeting yourself to the point where you can’t stick with it, here are three tips for creating a realistic budget.
Know How Much Money You’re Actually Bringing In Each Month
Before you can start figuring out anything else within your budget, you first have to know exactly what your income is. Until you know how much money you’re actually putting into your account each month—not the salary you’re told you’re making—you won’t be able to create a realistic budget. According to Trent Hamm, a contributor to The Simple Dollar, just because you think you’re making $50,000 a year doesn’t mean you’re taking home all that money. You need to account for things like taxes and other benefits that you might be paying for before you see the total amount you’re actually putting in your pocket. Make sure you’re using this number to base your budget off of, not just what you think you’re making or should be making.
Take The Time To Track Your Spending
In order to know where your money is going each month and if you’re comfortable with spending that amount, you have to know what your current spending habits are. To help you learn this information, Paula Pant, a contributor to The Balance, advises that you spend at least two to four weeks tracking your spending. This means that you track where every cent that you’re shelling out is going. At the end of your tracking period, you can then see patterns in your spending that will help you craft a budget that will be helpful to your financial goals while also being liveable for you.
Adjust Your Budget Each Month
While it would be great if you could create a budget one time and then have that work for you each month for the rest of your life, your finance simply won’t always be consistent. Because of this, Rachel Cruze, a contributor to DaveRamsey.com, recommends that you adjust your budget each month. For some people, the money they’re making will vary from month-to-month, making it necessary to adjust your budget accordingly. And for most people, there will be months where your budget will need to change, like around Christmas or when you get an unexpected bill. By looking at your budget each month, you can account for all of these variables.
If you’re wanting to save for a big purchase, avoid bankruptcy, or just get your spending under control, consider using the tips mentioned above to help you learn how to create a realistic budget.