Creating a budget can be exhausting, but it is one of the most important steps toward achieving financial stability. Having a budget gives you a realistic understanding of where you’re spending your money.
It’s a way not only of holding yourself accountable for your spending, but also of figuring out where you can improve your habits and helping you make important financial decisions. Read on to learn a few helpful tips for how to create a quick but realistic budget.
1. Start With a Template
You would be surprised how quickly a simple household budget can become complicated. Fortunately, there is no need to get your hands dirty creating a whole budget from scratch. Instead, go online and take a look at some of the many free budget templates that are already available.
This will help you come up with an organized plan of how you will record your expenses based on tried-and-true recording strategies that others have used. Below are a few programs that you should be able to find plenty of sample budgets for.
Excel has become the standard for spreadsheet users, and it’s easy to see why. With many functions and flexibility, you can create a highly dynamic spreadsheet that can help you with almost everything you need with a set of data. There are also a lot of finance formulas that make it an efficient and effective budget planner.
A free spreadsheet software, Google Sheets is one of the most popular apps to use for a savings planner. It contains a lot of essential functions we love about Microsoft’s Excel but without the cost. Plus, it works in your browser, which means that you can access it from any device as long as you are connected to the internet. You can have all the necessary finance formulas that you will need when creating a simple budget planner.
Money Planner Apps
A lot of budgeting apps are available on almost every platform. If you prefer to have easy access to a budget through your smartphone, the apps like Mint, EveryDollar Budgeting and Buddy may be great places to start.
2. Review Your Income and Expenses Data
After you have a good template to start with, it is time to take a look at actual numbers.
Last Month’s Expenses
While you can find a general income and expense allocation on the internet, the best way to set your budget is through your own data. Many experts recommend that you divide your after-tax expenses as follows:
- 50% on needs (rent, food, etc.)
- 30% on wants (video games, home decor, etc.)
- 20% to savings (retirement savings, emergency fund, etc.)
While this method does help a lot of people, it does not necessarily apply to everyone. For example, workers who live from paycheck to paycheck might not be able to afford 20% of their income going solely to savings. There are even times where they have more expenses than income.
Instead of having a strict guideline on how you should do your budget, simply look at your last month’s expenses and figure out how much of your money goes. Knowing where you spend your income is the first step to creating a realistic budget for yourself. If you end up not being happy with the amount of money that goes to each category, you can alter your spending — that’s the point of the budget!
Assets and Liabilities
The next thing you should do is take a look at your. It may be obvious why you need to know how much you have in liabilities (debts), since they will figure into your monthly expenses. However,it might not be as obvious on why you need to keep your assets in mind when creating a simple budget.
The reason it is important to have a general estimate of your overall assets is so that you have a better understanding of your options if you ever reach the red zone. If you find yourself in an emergency and need more money than you currently have on hand, then you should look into which assets you can liquidate them.
Assets are things like your house, your car, stocks, your retirement savings, etc. Even expensive jewels or rare collectibles can be counted as assets. Anything you can liquidate (sell) relatively quickly can be considered an asset as far as your household budget is concerned.
3. Set Allocations
Using last month’s budget as your guideline, take a look at where your money is going. If you feel like you are not putting enough of your cash inflow away toward savings, find places to adjust your spending accordingly so that you have more money left over at the end of the month.
Often, even expenses that seem “fixed” can actually be decreased. For example, if you are spending too much on food, you can try to find cheaper brands or make sure you are actually eating everything you buy. Likewise, if your electricity bill is too high, you may be able to cut costs by making sure you are using appliances efficiently.
Additionally, if your expenses have been almost the same for the last few months, you can average it to create a more realistic budget for yourself. This is the easiest way to make a budget and to reflect on your expenses.
4. Record Your Cash Flow
After you have allocated your income for the next month, the next thing to do is record all your cash flow. This will ensure that you are sticking to your budget and not paying for items you do not need.
It is recommended that you record all your expenses as soon as the transaction is over so that you will not forget later on. You should also check your weekly budget to see if you need to have a few adjustments for next week.
Setting a budget can be hard at first, but once you keep a record of everything you need, you should find it easier to save money. You can quickly check where your money is going and adjust your expenses accordingly if you need to.