I put together this guide to help others struggling with money management. Through my own experience, I've discovered how hard it is together a budget after your financial situation changes. Follow the steps below to prioritize your home budget. Believe me, getting everything down on paper or into a spreadsheet helps you stay honest about your cash flow.
How to Create a Home Budget on a Budget
Budget management starts with understanding your finances and tracking expenses. Whether you have a little or a lot, it's important to know where your boundaries are.
1. Take Inventory of Your Finances
"Setting up a budget initially takes some legwork, but once you get into the rhythm, experts say, you should be able to maintain your spending plan with less effort," according to U.S. News and World Report.
2. Track Your Expenses
Budget finance 101 starts with tracking your expenses. This means writing down how you spend your money — on food, gas, entertainment, rent/mortgage, and other expenses.
Tip: Rather than writing everything down in a notebook, use one credit card for all your expenses, then review the statement at the end of the month.
3. Conduct an Annual Review
At the beginning of the year, skip the New Year's resolution and spend the time looking over last year's bank statements. When I did this, I was surprised at how much my family spends on movies and dinners out. That's something we enjoy, but we're definitely cutting back. Instead, we're allocating more to the kids' college funds.
Not everyone is comfortable with using budget applications but you need a system to log and categorize expenses.
4. Determine Your Financial Goals
Setting goals and knowing how much they'll cost can really motivate you to stick to a budget. What do you want to accomplish? Perhaps you want to save up for a vacation or pay off your student loans. That's hard to do if you're living from one check to the next. In order to save money, you need to stay within your budget and have something left over at the end of the month.
The 50/30/20 Budget
Now you have a handle on your income and expenses. It's time to figure out how to allocate your money effectively. This budget finance strategy helps you split up your money efficiently without giving up the things you want.
Allocate 50% to Needs
Half of your after-tax income can go toward essentials, such as:
Minimum loan payments
"If your absolute essentials overshoot the 50% mark, you may need to dip into the “wants” portion of your budget for a while. It’s not the end of the world, but you’ll have to adjust your spending," according to NerdWallet.
Allocate 30% for Wants
Needs are essential expenses. For example, you have to have a place to live. Wants include travel, entertainment, and other nonessential things. For example, I categorized a loan to my brother as a want to remind myself of the true cost of my generosity.
These decisions may not be black and white. Fresh fruits and vegetables cost more, so are they a need or a want? How about your gym membership? On the other hand, I always leave wiggle room in my budget. If your budget is too austere, you might set yourself up for failure.
Allocate 20% to Savings and Debt Repayment
Use 20% of your income for emergencies or to pay off debt. If you have a lot of debt, more of this allocation may have to go toward paying it down. Just remember that you need emergency money to cover unexpected car repairs, medical expenses and other emergencies.
Meeting Your Bigger Budget Goals
Sometimes, getting you your goals means knowing where to go for help. I recommend finding a reputable lender to bring your goals to life without blowing up your budget. The loanry site can connect you to lenders with loan options that meet your needs.
When it comes to budget management, it's important to curate tools that help you meet your goals. I use budgetry.com because all I have to do is plug in my finances. The site shows me how to maximize my financial opportunities. With just a little time and commitment, you can set a budget and stick to it.
Published by Mohaned Gadnne