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03.02.2020 / Budgeting « Back to all articles

3 Easy Steps to Creating a Simple Budget
Budget - Woman with SmartPhone


Why Create a Budget?

For those who have ever been afraid to pull up a bank statement because of yet another overdraft, a budget is desperately needed. Really, every household needs a way to keep track of spending; but a budget is a necessary part of life that not only gives households a complete understanding of where their money goes, but it also gives them a sense of control. Making a budget is about keeping track of spending and making a plan, which then frees up a household to live life without the added stress of monetary concerns.

 

Calculate Income

The first step in creating a budget is to list all income-add it all together at the top of the budget sheet. There are even budget apps that can help organize all these numbers for you. Income from working will probably be the biggest amount to go into a budget, but make sure to include every penny such as online sales, side hustles or even a small pension.

Do not include any income that is unreliable or unsteady like the $50 a friend loaned to you. If the income amount is fluid from month to month, take the average and use that amount. A rule of thumb is never to budget the best-case scenario.It is much better to pick a conservative number and be surprised in a good way than to overstretch the budget.

 

List Fixed & Discretionary Expenses

Once the income number has been entered, it is time to list all expenses. Divide them between fixed and discretionary expenses.

Fixed expenses are ones that occur every month that cannot be changed such as rent or mortgage payments, utilities, car payments, student loans, and other recurring bills. Some of these bills will be paid off over time, but others will always exist.

Discretionary expenses are more flexible and therefore can be cut or managed more easily. For example, gas, groceries, and hygiene products can vary greatly from month to month, but still need to be budgeted, so try to keep a reasonable estimate on those numbers as well.

Look at interest rates paid on loans. Combining several small high interest loans into one larger lower interest loan can save hundreds of dollars per month in a budget. Make sure to have interest rates on hand when creating a budget.

 

Evaluate & Make a Plan

After listing all income and expenses, make a comparison to see how much income is left over. This is where many people receive their wake-up call. If the number is negative, stop immediately and reevaluate the discretionary income. It may be time to swap that gas guzzling car for a bicycle if work is only a few blocks away. If renting, it may be time to look for a less expensive apartment or roommates who can share the expenses. A seasonal second job to help ease the budget may also be an idea.

With any amount remaining in the budget, immediately start a savings account. This gives the household a cushion to use in case of an unexpected expense that can leave a budget in shambles.

Just remember, a budget is a way to help households realize exactly where their money is coming from and going. It is often easier to get a grasp on an out of control budget when it is laid out clearly in front of you.

09.28.2020 / Borrowing

Should You Refinance Your Home?
Mortgage rates have reached record lows. With the economy now coasting into a recession, it is only natural that you…

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03.02.2020 / Budgeting « Back to all articles

3 Easy Steps to Creating a Simple Budget
Budget - Woman with SmartPhone


Why Create a Budget?

For those who have ever been afraid to pull up a bank statement because of yet another overdraft, a budget is desperately needed. Really, every household needs a way to keep track of spending; but a budget is a necessary part of life that not only gives households a complete understanding of where their money goes, but it also gives them a sense of control. Making a budget is about keeping track of spending and making a plan, which then frees up a household to live life without the added stress of monetary concerns.

 

Calculate Income

The first step in creating a budget is to list all income-add it all together at the top of the budget sheet. There are even budget apps that can help organize all these numbers for you. Income from working will probably be the biggest amount to go into a budget, but make sure to include every penny such as online sales, side hustles or even a small pension.

Do not include any income that is unreliable or unsteady like the $50 a friend loaned to you. If the income amount is fluid from month to month, take the average and use that amount. A rule of thumb is never to budget the best-case scenario.It is much better to pick a conservative number and be surprised in a good way than to overstretch the budget.

 

List Fixed & Discretionary Expenses

Once the income number has been entered, it is time to list all expenses. Divide them between fixed and discretionary expenses.

Fixed expenses are ones that occur every month that cannot be changed such as rent or mortgage payments, utilities, car payments, student loans, and other recurring bills. Some of these bills will be paid off over time, but others will always exist.

Discretionary expenses are more flexible and therefore can be cut or managed more easily. For example, gas, groceries, and hygiene products can vary greatly from month to month, but still need to be budgeted, so try to keep a reasonable estimate on those numbers as well.

Look at interest rates paid on loans. Combining several small high interest loans into one larger lower interest loan can save hundreds of dollars per month in a budget. Make sure to have interest rates on hand when creating a budget.

 

Evaluate & Make a Plan

After listing all income and expenses, make a comparison to see how much income is left over. This is where many people receive their wake-up call. If the number is negative, stop immediately and reevaluate the discretionary income. It may be time to swap that gas guzzling car for a bicycle if work is only a few blocks away. If renting, it may be time to look for a less expensive apartment or roommates who can share the expenses. A seasonal second job to help ease the budget may also be an idea.

With any amount remaining in the budget, immediately start a savings account. This gives the household a cushion to use in case of an unexpected expense that can leave a budget in shambles.

Just remember, a budget is a way to help households realize exactly where their money is coming from and going. It is often easier to get a grasp on an out of control budget when it is laid out clearly in front of you.

Need a
Loan?

Loans from $120 to $15,000. Get funded as soon as today!

09.28.2020 / Borrowing

Should You Refinance Your Home?
Mortgage rates have reached record lows. With the economy now coasting into a recession, it is only natural that you…