Budgeting Tips for Beginners
It can feel overwhelming to create your first ever budget, but here are some tips that you can follow to build your personal budget.
Know What You Have
The first thing that you will need to do is to determine how much you have. If you have a checking account, a savings account, an investment account and other such financial instruments you will need to find out how much you have in each account as well as the expenses and interest rate for each one. This is an important figure as it determines your net worth and the best use of your capital.
What Do You Make
Those that have a monthly salary that is fixed each month will find it easy to determine what they make. However, for those that are paid hourly or those that have an income that may rise and fall erratically it can be more difficult.
It is then important to determine the average monthly amount that you receive, regardless of how your monthly income is earned.
If you receive an irregular income then it is a good idea to work out the average based on the last 6 to 12 months. You can be extra conservative by taking the lowest monthly amount you have earned in the last year. This will give you a worst-case scenario.
What Do You Owe
The next step that you need to take is to determine your monthly debt payments that you make every month.
This should be straight forward as long as you have stopped taking on extra debt in the short term.
Determine your monthly debt payments and the total amount that you owe on each of these debts and the minimum monthly payment. This debt will include mortgages, car loan, credit card debt, student loans and other such debt. This will be your first few items in your budget and will help you to determine your net worth.
Your Net Worth
Once you have determined how much money you have and what you owe, you can calculate your net worth. You will need to subtract what you owe from what you have. The end sum of this calculation will tell you the value of your financial resources.
Average Recurring Monthly Expenses
You should make a pile of household expenses for a month. It is also a good idea to keep your receipts, your bills and other expense documents that arise in the month. These bills can then be divided into categories.
The categories that you make can be general or specific. This will help you to work out the average amount of expenses for each category.
Once you have added all this information into your budget, you will get to your bottom line. This number will tell you if you are overspending or not. This is also where you will find out if you are living within your means. You may discover though that you will have to make adjustments to your expenses so that you are able to live within your means.
If you find that you are overspending each month, then you will need to make cuts to your monthly expenses.
Once you have made your budget, made the necessary cuts and ensured you have evaluated categories and bills accurately, you will need to be disciplined. Ensure that you stay within your budget and are disciplined with your money.