New Year, New Bills: A Step by Step Guide for Effective Budgeting

Only 32% of Americans maintain a household budget.

For many of us, when it comes to finances, we tend to bury our heads in the sand. Analyzing how much we spend is only going to end in tears, right?

In fact, the opposite is true. Utilizing effective budgeting can actually help us to save money, and even leave us with more money to spend on those things we never thought we could afford.

Read on as we take a look at how to create a budget.

1. Work Out How Much You Earn

The first step is to work out exactly how much money is coming in.

It’s essential to make sure your budget depends on your take-home pay, rather than your gross earnings. Take a look at your payslips to see precisely how much money is coming in once taxes and other contributions have been taken out.

If you have any other sources of income, such as a side-hustle then make sure you include this money in your earnings too.

2. Work Out How Much You Have

As well as your earnings, you may also already have some money set aside.

Depending on your circumstances, you may want to leave this amount aside as your rainy-day or emergency fund. If you have outstanding debts, however, then it may be more cost-effective to use some of your savings to pay these debts off, rather than continue to accrue interest on them. If you have several sources of debt, it may save you money to consolidate your debts by taking out a loan.

3. Work Out Your Outgoings

Just like any debt repayments, you will then need to factor in all your other outgoings.

The largest outgoings are typically for housing costs, transportation, food, insurance, and healthcare. You can work out all of your regular outgoings by taking a look through your bank and credit card statements. Some of these outgoings may vary from month to month, such as your food bills, so the simplest method is to budget for your most expensive month, which will give you plenty of wiggle room.

If you have expenses that weren’t that necessary, then eliminating these from your budget will free up some cash to accommodate other bills.

4. Work Out Your Financial Priorities

Subtract your outgoings from your earnings, and you’ll have an idea of how much you have leftover each month.

If the result is negative, then you’re spending beyond your means. There are two things to do in this case: stop spending so much or start earning some more, by taking on other work or selling some of your unwanted items.

If your result is positive, this is where you have decisions to make. You may decide you want to put this money aside to build up some savings. Or you may want to put it towards paying off debts or use some of it on eating out now and again. Whatever you decide, by setting out exactly what you’re going to spend each month, you will find yourself far less likely to splurge on unnecessary things and will be able to take control of your finances.

Even Effective Budgeting Needs Wiggle Room

Effective budgeting is great, but it doesn’t take into account emergencies or one-off increases in your outgoings.

There could be situations when you need to cover something that you haven’t budgeted for and that doesn’t mean that your budget has failed. You can always think of borrowing money, provided their repayments are easy to work into your budget. Happy New Budget to you!

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