It’s a common problem for many – after paying expenses, such as your mortgage, utilities and credit card bills, you may find little left to put toward anything else. Creating a budget and knowing exactly how you are spending your money each month can set you on a clear path to pursuing your financial goals. If you become sidetracked when it comes to your finances, consider these tips for creating a budget.
Examine your financial goals. Start out by making a list of your short-term goals (e.g., new car, vacation) and long-term goals (e.g, your child’s college education, retirement) and prioritize them. Consider how much you will need to save and how long it will take to reach each goal.
Identify your current monthly income and expenses. Add up all of your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends, interest and child support. Next, add up all of your expenses. Sometimes it helps to divide expenses into two categories: fixed (e.g., housing, food, transportation) and discretionary (e.g., entertainment, vacations). Don’t forget to factor in any financial goals you would like to pursue.
Evaluate your budget. Ideally, you are spending less than you earn. If this is the case, you’re on the right track, and you’ll need to look at how well you use your extra income toward achieving your financial goals. On the other hand, if you are spending more than you earn, you should make adjustments to your budget. Look for ways to increase your income or reduce your expenses, or both.
Monitor your budget. Finally, you should monitor your budget periodically and make changes when necessary. Keep your budget flexible as your changing circumstances demand.