How to make a budget?
We learned in the previous blog post that the budget is the calculation of how much money you earn every month, and how to direct this money to make what you dream of come to reality, whether it is basic needs or luxuries.
The first step you should take towards building new financial habits that serve your needs is to create a budget.
To build these habits you need to follow 5 clear yet simple steps. Ready?
#1: Create a list of your monthly expenses:
Write down all your monthly expenses, from basic needs like the rent or monthly installments to the gums you buy just to kill boredom.
You can use your previous bills, or track your bank application, and/or any other online payment method you use, that will help remember your past purchase details.
You can use your previous bills, or track your bank application, and/or any other online payment method you use, that will help remember your past purchase details.
#2: Fixed vs. variable expenses
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In this step, you’re going to categorize your monthly spending.
The fixed expenses are the ones that come with the same amount every month. So, what are the variables? Yes, you guessed it right! The ones that vary from month to month, like groceries, gas, dining out, electricity bills, etc.
The fixed expenses are the ones that come with the same amount every month. So, what are the variables? Yes, you guessed it right! The ones that vary from month to month, like groceries, gas, dining out, electricity bills, etc.
#3: Set your goals:
Setting goals is impressive, yet having a plan and a system to get you scoring this goal is much more stunning!After you document all your future dreams, there’s one thing to keep in mind; is that dream/goal a “need” or a “want”?
Another important thing to consider: is it a short-term goal, or a long-term one?
Use this table below to apply that advice:
Another important thing to consider: is it a short-term goal, or a long-term one?
Use this table below to apply that advice:
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#4: Set your net income:
Many individuals kick off their budgeting journey by focusing on calculating their net income, and that’s not eventually wrong, however it could fool us for some reason that by doing that we have a budget made!
Another reason to reconsider starting with this step is the importance of understanding your habits as a consumer. By tracking and categorizing your monthly expenses—both fixed and variable—you gain valuable insights.
Delaying this “moment of truth” allows you to envision your aspirations and remember the goals you once set, which serves your plan as a powerful motivation to stick to your budget in the long run.
That’s why we’ve organized these steps in a logical sequence to ensure your actions align effectively.
Another reason to reconsider starting with this step is the importance of understanding your habits as a consumer. By tracking and categorizing your monthly expenses—both fixed and variable—you gain valuable insights.
Delaying this “moment of truth” allows you to envision your aspirations and remember the goals you once set, which serves your plan as a powerful motivation to stick to your budget in the long run.
That’s why we’ve organized these steps in a logical sequence to ensure your actions align effectively.
Flash tip: knowing that your net income is different from your total income, allows you to avoid overestimating your purchasing power, which leads to avoid overspending.
#5: Adjust your spending
Now you have a solid understanding of your total income, net income, fixed and variable expenses, and your financial goals as well.Then, It’s time to put your magic touch on your budget.
Take a moment to compare your net income against your monthly spending and future goals.
Take a moment to compare your net income against your monthly spending and future goals.
Now, which area requires some fine-tuning?
- Do you daunting the essential needs: like you need a higher income to meet your household expenses, improve your nutrition, or repay that consumes a bulk of your paycheck?
- Or is it more about desires and luxuries? Dining out, traveling, shopping, etc.
- Possibly your focus should be on your long-term goals? Such as purchasing a new house, funding your children's school, pursuing a master's degree, starting a small business, or even building your emergency fund?
- Maybe you’re satisfied with your current situation, but you need to consider future investments to enhance the value of your money over time.
Get more pro help in customizing your budget and learn about the different types of budgets.
Next blog post >> How Do I Stick With My Budget?
