Steps On How To Budget Your Finances
Post on 25,May 2020   9:55 PM
By - PolyEyes Staff
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Are you saving up for a new car or home? Do you plan to take a much-deserved vacation in the next few months? If you are, then you need to have a solid budget plan to save enough money to pay for them. Here are the steps on how to budget your money correctly. 

Realize Your Need to Budget

Every great budget plan starts with the person realizing the need to budget and manage finances. Much like in the steps in addiction recovery, the most critical step is to realize that a problem exists. A person always struggling with finances should admit that there is a problem that needs addressing. Once there is awareness of the need to budget, then following the next steps should come quickly. 

Identify all Your Monthly Expenses

If you are having financial struggles, then it is most likely that you were not safe-keeping your purchase receipts in the first place. That has got to change. Determine how much you spend every month, ask for it, and keep all the receipts for every expenditure. If you are using a debit card or a credit card to pay for everything, you can quickly identify your monthly expenses by looking at your bank statements. To include intermittent costs such as payments for car insurance, include bank statements for six months. Sum up all the cash payments, divide it by six months, and get your average monthly expenses. However, to account for any forgotten bill, it is a good practice to add in an extra ten percent to the total amount and designate the adjusted amount as your average monthly expenses. 

Determine How Much You Make Each Month

The next step on how to budget your finances is to take stock on all your earnings. Your primary source of income will most likely be your regular salary. However, you should also include all extra funds that you may get throughout the year, such as income from other sources like a second job, and income from rental properties. 

Calculate Possible Savings or Deficits

The next step will determine your financial outlook. Subtract your average monthly expenses from your expected monthly income; the dividend will be the amount that you can earmark for savings. A negative result means that your monthly earnings are not enough to sustain your monthly expenses. You can correct this by either finding additional income sources such as getting a second job or by controlling how you spend your money. 

On the contrary, if you are earning far more than what you are spending, you will have more money to earmark into different categories. 

Set Aside Money into Different Categories

When you have nothing left after you subtract your spending from your income, you are not budgeting your finances properly. You are spending way over your budget and are not living within your means. When you follow the 50-30-20 rule on how to budget, the amount that you should spend on necessary expenditures such as rent, utilities, food, gas, and insurance should be equal or less than 50% of your after-tax income. It is best to earmark the rest of the money as follows; 30% for savings and 20% for wants. 

Keep Track of Your Spending and Progress

With the 50-30-20 rule in place, you can already determine how long it will take you to get that new car. For example, if your monthly net-after-income earning is $2000, $1000 should go on paying for necessary monthly expenses, $600 should be earmarked for savings, while $200 should be allotted for your new car. So, if the vehicle you want costs $10,000, you should expect to pay for it in 50 months.  

Be Realistic. While you should always aim to stick to your budget, you may occasionally break the rule by switching the 30-20 portions to suit your financial needs. 

The above steps will give you the knowledge to budget your finances according to your income and needs. 

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