How can I pay for rent, food, insurance, health care, debt repayment, and enjoyment without running out of money if my take-home wage is $2,000 each month?
That’s a lot to cover in such a short amount of time, and it’s a zero-sum game. The answer is to make a budget.
It would help if you found out how much you have spent already, what you can spend comfortably, and your life goals to build up a good budget that works perfectly for you and allows you to live a happy and comfortable life.
Find a template to fill in expense data for your income and cost before you start building a good budget.
Effectively Creating a Budget for Your Monthly Income
A budget is a strategy for spending every dollar you have. It isn’t magic, but it does mean more financial freedom and less stressful life. Here’s how to make a budget and then manage it.
1. Assemble all of your financial documents
Gather all of financial statements before you begin, including:
- Statements of account
- Accounts for investments
- Utility bills from the last few months
- Paystubs and W-2s
- Bills from credit cards
- Statements for a mortgage or a car loan
You need to be capable of seeing all of your expense and revenue records. Building up a good average monthly is a crucial aspect of budgeting. The more records you can pull together, the better your chances of creating a good budget.
2. Determine Your Earnings
Your monthly income in a budget is the amount you take home in each paycheck (not your total annual salary), as well as any other regular payments you receive, such as freelance revenue, investment dividends, interest, and child support.
That’s how much you’ll have to spend. Add up all of your usual monthly expenses next. Housing, utilities, daycare, phone and Internet service, food, student loans, insurance, transportation or commuting costs, and other regular bills should all be included.
The discretionary expenses, or optional or flexible, are the next step.
Entertainment, dining out, vacations, hobbies, and other extracurricular activities are examples of discretionary spending. Finally, remember to budget for costs that aren’t monthly but occur regularly, such as auto maintenance, home repairs, and holiday spending.
Examine your bank statements and receipts to see if there are any expenses you’ve forgotten about.
3. Make a Monthly Expense List.
Make a list of expenses and costs you intend to incur over a month. For example, This comprehensive list includes:
- Car payments
- Child care
- Eating out
- Personal care
- Transportation costs
- Student loans
Use your receipts, credit card statements, and bank statements from the last three months to identify all your spending.
4. Determine Variable and Fixed Expenses
Fixed expenses represent expenses that must be paid regularly and for which you pay equal amount for each time. For example, include:
- Payments for home or rent.
- A car.
- A fixed-fee internet connection.
- Trash pickup.
- Frequent child care.
In addition, include any other essential spending that tend to stay every month if you pay a standard credit card payment. Include debt and savings repayment as expenses that are fixed if you plan to save money or pay off an amount of debt monthly.
Variable expenses are the type that will change monthly, for instance:
- Eating out
Let’s say you don’t have an emergency fund, include a category for “unexpected expenses” that may arise during these weeks and throw your budget off track.
Beginning with your fixed expenses, assign expense values to every category. Then determine how much you are to spend per month on these expenses.
If you’re not certain of the amount you expend in every category, look over your credit card or bank statements from the last few months to get an idea.
5. Add up your monthly expenses and earnings.
You’re on the right track if income exceeds your costs. This extra cash allows you to allocate monies to other aspects of your budget, like retirement savings or debt repayment.
Consider using the “50-30-20″strategy for budgeting if your income exceeds your expenses.
In this strategy, essential expenses or “needs”, should account for a part of your budget, while “wants” should account for about 30%, and debt repayment and savings should account for the remaining 20%.
If expenses exceed your income, you’re overpaying and have to make some adjustments.
6. Recognizing the Budgeting Process
- Calculate your after-tax revenue
If you earn a regular paycheck, the cash you earn is probably it; but, if you operate on automatic deductions for a 401(k), health, savings, and life insurance, add them back in to get a fair picture of your expenses and savings.
If you have other sources of income, such as side hustles, deduct anything that lowers it, such as taxes and business expenditures.
- Choose a budgeting strategy
Any budget must account for all your requirements, some of your wants, and — most importantly — emergency and long-term savings. The envelope method and the zero-based budget are two examples of budgeting plans.
- Keep good track of your monthly progress using the following methods
Keeping track of your spending is a good idea using online budgeting and savings tools.
- Automate your savings
As much as feasible, automate your savings so that the money you’ve set aside for a certain reason arrives with minimal work on your part.
An accountability partner or online support group might assist you in holding yourself accountable for budget-busting decisions.
- Budget management
Because your income, expenses, and priorities may fluctuate over time, review your budget frequently, possibly once a quarter. Try these budgeting ideas if you’re having trouble sticking to your budget.