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Budgeting is something that all of us should be doing. But how come not everyone is doing it? Only a few people actually create a budget.
There has been a lot of misconception about budgeting. Some think that budgeting is restricting yourself to have a life. Others believe that budgeting is only for those who have minimal income. And most feel that budgeting is hard.
Yes, these are misconceptions because first and foremost, budgeting is for everyone, whether you have a limited income or making millions. And it’s absolutely not restricting yourself to have a life, because it actually helps you manage your money better so you can enjoy your life better.
And lastly, if you think budgeting is hard, then you are in the right place. Today, you will learn about how to create a budget if you’d rather want to learn about creating a family budget, check out How To Create A Family Budget.
Now let’s dive in.
Create A Budget 101
#1 Know Your Total Income
The first thing you need to do when you are creating your budget is to know how much money is coming in every month and where are they coming from.
Add up all your income from your regular job, side hustles, dividends, and any other sources. The total will be the amount you will be working with.
If your monthly income fluctuates, work on the lowest total amount in a given year. It is better to be on the safer side.
#2 Add Up Your Monthly Expenses
After knowing your total monthly income, you will then work on finding out how much are you spending. The easiest way to do this is to get all your bank statements for the past three months.
Your monthly expense categories may consist of housing, transportation, utilities, food, entertainment, etc. Write down the average of how much are you spending on a particular category each month. After all expenses are accounted for, add up to get the total monthly expenses.
#3 Find Out How Much Is Your Surplus
Now that you know how much money is coming in and how much is going out, it’s time to find out if you are living beyond your means. You can do this by subtracting your total monthly expenses from your total income.
Ideally, you would want the result to be positive, meaning you have leftover or surplus money after all expenses.
#4 Increase Your Surplus
If for some reason, you end up with zero of negative surplus, don’t despair because you still have a chance to turn it around. Here are two options that you can do;
Reduce Your Expenses
If you have more expenses than your total income, go back to your list of expenses and re-evaluate. Double-check the categories where you spent more of your money. Can you reduce it?
Most people find out that they spend most of their money on dining out. If this is you, are you able to cut down? Can you meal plan instead?
When you run a fine-toothed comb on your expenses, you will realize that there are certain unnecessary expenses.
Increase Your Income
If for some reason, you are not able to reduce your expenses, then it is time to supplement your income. Find some side hustles that you can do. You can rent out a spare room, pick up a delivery job after work, or check out some online jobs.
In this day and age, you cannot run out of side hustles or online gigs that you can increase your income.
What Can You Do With Your Surplus Money
After reducing your expenses or increasing income, you now end up with extra money on your hand. Now what?
EMERGENCY FUND. If you do not have an emergency fund yet, start one. You will thank yourself later.
PAY OFF DEBT. If you have debts hanging around, pay them down with your surplus money.
DOWNPAYMENT. If you are planning to buy a house of a new car, save up for a downpayment.
VACATION. A fully funded vacation is more enjoyable and stress-free than a vacation done with credit.
What you do with your surplus money depends on your financial goals.
Last Thing You Need To Know
You create a budget to gain more control over our money. As a result, you will be stress-free and be able to enjoy your money more.