Creating a budget can be daunting to some, especially if finances are tight. And while it might seem initially scary to set limits on yourself and impose new rules, it does not have to be. If set up correctly, budgets can be freeing, believe it or not. They give you a better perspective on your spending habits, what to improve, and which areas of life you can allocate more money. And once you get into the habit of sticking to a budget, it gets easier and easier. Here are some ways to start:
1. Add up your fixed costs
The first step to creating a budget is by identifying your fixed costs. These are consistent payments that must be paid monthly and therefore are the most important. This might include rent, mortgage, bills such as phones, TVs and if you have a car, costs associated with that such as insurance.
This will give you the first figure of your budget and show you how much of your money goes to fixed amounts and where you can cut costs potentially.
2. Add up your variable costs
Variables are costs such as groceries, food, drinks, and any other payments that are not necessarily monthly but do crop up. Variable costs are just that, they change. Sometimes you might spend lots of money on eating out one month, and start cooking at home the next month.
Start with the highest amount of variable costs for these categories and add that to the fixed cost budget you identified. This gives you the worst case scenario for the month. Think about when your variable costs are its lowest and add that to the fixed cost - that gives you the best case scenario.
3. Think about your savings
The first two points give you a clear picture of what you are currently working with budget-wise and how much is actually left over by the end of it. The key is to always set aside some money for savings in case of emergencies or other issues. Understanding your fixed and variable costs helps you get an idea of what percentage of your money can be kept in a savings account for emergencies.
4. Add up your debt
For many, the scariest part of budgeting is coming to terms with any debt you might have. Whether it is credit cards or other types of loans, debt is completely manageable. Once you add up your monthly payments along with your other expenses, you can better analyze where you can afford to cut corners.
Taking stock of your debt empowers you to manage it better and budgets can help you accomplish that.
5. Use online banking
Online banking is incredibly helpful for a number of different reasons. It gives you an organized way to see all your transactions to identify where money is spent and you can quickly and easily move money from your checking to savings account.
Take some time to explore online banking options, since many of them come with useful features for budgeting such as spend analyzers, rounding up change on purchases, and other great tools to help you stay on track with your budget.