What is a budget?
A budget is a way to balance your income, expenses and financial goals.
A budget is a spending plan based on your income and expenses. It is a way to know what money is coming in (income) and what money is going out, (expenses).
Why do I need a budget?
When you have a budget you tell your money where to go, instead of wondering where it went.
When we budget we want to have a comprehensive list of our planned income and expenditures.
Examples of the income::
Weekly, bi-weekly or monthly paycheck, Commissions, Rental home income, Interest income, Side hustle or freelancing income When calculating your income for the month make sure you use your NET income, not gross.
Examples of Expense categories:
Groceries, TV/Streaming Services, Auto Loans, Credit Card Debt, Student Loans, Electricity, Natural Gas, Internet, Child Care, Clothing, Entertainment, Pet Car, Gas, Dinning out.
These are just a few of the different income sources or expenses you may have each month.
It is important to review and prepare the budget for the upcoming month ahead of time. A good time to do this is within the week before the new month starts.
How to create a budget?
As noted above, you want to have a comprehensive list of income and expenses.
If your income is set and always the same then use those numbers for your income. If your income fluctuates due to commission, hours worked or other things many times basing your budget off of the minimum you expect to receive for income in that month will keep you from overspending.
Once you have your expected income set make a comprehensive list of reoccurring monthly expenses, such as rent or mortgage, auto loan, student loan, electricity, natural gas, TV/Streaming services, etc. Also set an amount you plan to spend on groceries, dining out, entertainment, child care, clothing, etc.
Once you have your income and expenses laid out for the month make sure you aren’t spending more than you are brining in.
Here is an example of a very simple budget for a two income household:
Income:
Person one: Paycheck 1 Net: $1300
Person two: Paycheck 1 Net: $1200
Person one: Paycheck 2 Net: $1300
Person two: Paycheck 2 Net: $1200
Planned Income: $5000
Expenses:
Electricity: $100
Natural Gas: $75
TV/Streaming: $100
Phone: $95
Auto Loans: $700
Student Loans: $600
Credit Card (minimum payment: $60
Mortgage or Rent: $1100
Groceries: $1500
Dinning Out: $200
Entertainment: $125
Clothing: $250
Total Expenses $4905
In this example we can see that there is still $95 of income left. A few things could be done with this. They could pay extra on the credit card or student loan debt. They could also put some into a savings account and build up an emergency fund.
The 50/30/20 budget
The 50/30/20 budget divides your expenses into three categories: 50% of your net income for NEEDS, 30% for WANTS, and 20% for SAVINGS and paying off DEBT.
NerdWallet has a monthly 50/30/20 Budget Calculator that can be found HERE.
You can use the calculator to estimate how you might divide up your monthly income.
What if my expenses are higher than my income?
This is very common, but it is also something that can be adjusted and changed. It will take reviewing the budget, finding out where changes, adjustments and wants can be reduced.
If you are thinking, I don’t know where to start on cutting back expenses, or this budget things seems too hard, or you have tried it before and it didn’t work. I hear you, but I am here to help. Schedule your free consultation call HERE and we can discuss where you are now, where you want to go and how to get there.