Here’s how to create a budget.
1Write Down Your Net Income
You need to know how much income is coming into your bank account each month. Deduct a percentage and apply it to savings before adding the rest to your budget. Paying yourself first is a habit you should develop and continue for the rest of your life.
If you’re self-employed, also be sure to exclude funds you’ll need to pay for income tax and social security. Set those funds aside in an account you never touch for any reason. That way when tax time comes, you won’t be thrown off guard.
Whatever is left over after savings and taxes is your net income.
2Write down every expense for one month
You won’t be able to create an accurate budget unless you know what every one of your monthly expenses is, so keep a small notebook with you at all times and write down everything you buy either online or at a brick and mortar store for one month. At the end of that time, you’ll have an accurate picture of how much you spend.
Make a list of every type of insurance you have, including home and auto insurance. Write down what you owe each year and then divide that amount by twelve. Include that in your monthly expenses.
3Leave Yourself a Cushion
Even if you have a detailed spending plan, unforeseen expenses are bound to arise, so leave yourself a cushion of between five to ten percent of your net income. Call it miscellaneous expenses or emergency costs, but include that amount in your budget. That way, you’ll be able to stay on track no matter what happens.
4Are Expenses Greater Than Your Income?
If you’ve written down all expenses along with your net income and the expenses are greater, then take a hard look at your budget. What can you cut down on? Oftentimes you save money and improve your health if you cook your meals at home rather than eating out.
When preparing a meal, cook a double portion and freeze half of it. That way, you’ll have a frozen meal available on days when you’re too tired to cook. Whenever there’s a sale at the store, stock up on those items you like to save money on grocery costs down the road.
Keep these tips in mind, and you’ll have a realistic budget that will help you prepare for retirement.