So, you’ve decided to start budgeting. Good for you. It’s smart move that’ll keep you track of your spending and possibly start saving. But if this is your first time budgeting, it can be intimidating trying to figure out how much to allocate, especially since there are no hard-and-fast rules about how much people should spend. So how do you decide what goes where?
Get on the Same Page with Your Partner
The first step to becoming a budgeting pro is talking with your partner. You need to figure out what kind of lifestyle you can afford, and the only way to do that is by having an honest conversation about money. Talk about how much you’ll spend on rent and utilities each month, as well as other expenses like groceries and entertainment. Talk about big purchases too. Think about how much you want to put down on a car or house so you don’t have any surprise bills come in later down the line. You should also discuss what type of vacations you want to take and when. If you have your heart set on a luxurious vacation, you need to factor that into your budget.
Identify Financial Priorities
The next step to budgeting like a pro is to create financial plan. If your partner or teen plans on attending college, you need a way to pay for it. Aside from taking out student loans, you could think about becoming a co-signer. Why? Because it’s not uncommon to be ineligible for a loan, which means having to pay out of pocket or taking on a high-interest personal loan. Do you find yourself wondering what does a cosigner do for a student loan? It’s easy, as a co-signer, you can help your loved one earn a degree without having to worry about paying off the loan. Once they graduate and find a job, they can then take over the financial responsibility.
Create a Budget Template
A budget template is a must-have tool to help you keep track of your spending. It’s like a map that guides you through the journey of budgeting, and it saves time and effort. You can create a budget template in Excel or Google Sheets. If you don’t have any of those programs on your computer, use another piece of paper to make one instead; it doesn’t matter what kind of format your budget has as long as it works for you. Once your template is created, add the information from the different categories into each row: income in one row and expenses in the other. You can calculate how much money remains after all expenses are paid off by subtracting total income from total expenses.
Add Up All Your Income
This includes everything you bring in, from a regular paycheck, any side hustles, and investments and pensions to student loans and child support payments. If you’re married or partnered with someone who earns a salary, include their income as well.
Write Down All of Your Expenses
First, you’ll need to make a list of all of your expenses and how much money you spend on them. The best way to do this is with a spreadsheet or budgeting app that tracks all of your transactions. The point isn’t just to track how much money goes into your account, but also what you’re spending it on and whether or not it’s necessary. Even if an expense is specific to one category (like travel), make sure you include it in the overall budget. When determining what bills should be included in the monthly tally, think about every bill being paid out at least once per month, rent or mortgage payments; insurance premiums; electric bills and gas receipts; phone charges; cable TV subscriptions (if applicable); car loans/leases payments; student loan payments (if applicable).
Figure Out What You Have Left
Now that you have your expenses and income, the next step is to figure out what’s left over. To do this, subtract your expenses from your income. If you’re in the positive, then you’re already on the right track. If not, it’s time for some serious decision making and possibly sacrifices on your behalf. It may be necessary for everyone in the household who isn’t employed full-time or earning extra income through side hustles has cut back on spending so that there’s enough money left over each month for rent/mortgage payments or other bills like car payments as well as groceries and utilities.
Use a Budgeting App
You should also look into using a budgeting app. There are plenty to choose from, however, some of the most popular ones are Mint. These apps track how you spend money and even give you tips on how to save money on groceries, reduce monthly bills, and overall spend less. Just remember that the app is only as good as you allow it to be. If you’re not being honest without yourself, the app won’t tally your finances correctly. Make sure you’re keeping accurate track of your money each month and always input the correct information.