One of the most effective ways to not be stressed about money and to create a better money mindset is to plan where your money goes.
Not only does budgeting give you that control over your money but will also help you form a positive relationship with money.
Beginning the budgeting process can be quite daunting however, here are six steps on how to create a budget:
1. Calculate your income for the month.
Add up any money that you receive in a month including your wages/salary after tax; benefits; child support payments; regular bonuses; investments or money that you receive from a side business. This will give you the total income.
2. Add up ALL your monthly expenses.
This may take some time to do as you may have forgotten about some such as the ones that you pay automatically. Get into the habit of listing out everything you are paying for so that you save time next time.
It can be difficult to take in especially if the amount that you are spending on is not what you expected. This would be the case if you hadn’t tracked where your money was going. Be strong and talk to someone if this causes anxiety.
3. Subtract your expenses from your income.
Make sure you include everything that you are spending so that you have a clear picture of where your money is going. After you have done your calculations and you have money left over, you are on the right track. If you in the negative, think about the adjustments that you need to make to ensure that you can eventually save up.
4. Incorporate a spending cap or freeze.
This is the amount of time that you choose not to spend money unnecessarily for a set amount of time. This is helpful especially if you’ve done a big spend such as going on a holiday; just got married or after Christmas. This will help you recover your finances so that you aren’t swimming in stressful debts.
5. List all your bills from most important to least critical.
Think about your home and what you need on a day-to-day basis. Pay rent/mortgage first. Next is the electricity and heat. Then think about transport including fuel, insurance or bus/train tickets.
Food is also part of the home but think about the essentials first.
From here, think of all the other debts from to most important to least and then allocate your money to pay them in that order.
If you have a loan, even though it’s not the most important still needs to be paid so that should be somewhere in the middle.
Insignificant debts such as magazine subscriptions or gym memberships can be put on hold until you are able to pay for this without worrying about debt. This leads on to our next step.
6. Cut down on expenses.
Eating out every other night? Stop and start cooking at home. Have you got more than three TV subscriptions? Cut down to the one that you watch the most or just stop the subscriptions altogether. You will be amazed at how much time you will get back to do other things such as learning a new skill; exercising or spending quality time with your family.
Where do I create or put my budget?
There are several ways that you can do this. You can use apps such as the budgeting tool on the MoneySkills App, a free printable one that you can find online, ledger accounting book; Excel spreadsheets.
Remember these things:
- Revisit your budget. EVERY. MONTH. You need to be consistent.
- Make adjustments if you need to.
- Keep a habit of recording all your expenses. This will help you save time when it comes to adding up all your expenses.
- If it helps, make a note in your calendar every month to review your budget.
- Having a budget is the start of financial bliss. Knowing your numbers and seeing how you are spending your money is the best way to help you towards achieving your financial goals.
By creating a budget (and sticking to it) will improve your life.