If you are worried about making your take-home pay stretch to cover all your expenses, savings, and wants without running out of money, making a budget can help you. There is no one-size-fits-all that is going to work for everyone. This can make it difficult to create a budget and stick to it – but they are very beneficial for a lot of people no matter their career or income.
What is a budget? A budget is a plan for every dollar you have. It represents more financial freedom and a life with much less stress.
Let’s start to set one up:
Calculate your monthly income. If you get a regular paycheck, the amount you receive is probably it, but if you have automatic deductions for a 401(k), savings, and health and life insurance, add those back in to give yourself a true picture of your savings and expenses.
Choose a budgeting method. Any budget must cover all of your needs, some of your wants, and savings for emergencies and the future.
Track your progress. Record your spending or use budgeting and saving tools.
Pro tip: Automate as much as possible so the money you’ve allocated for a specific purpose gets there with minimal effort on your part.
Try the 50/30/20 rule as a simple budgeting framework. Allow 50% of your income for needs, leave 30% for wants, and commit 20% for your savings and debt repayment.
Pay more than the minimum. Find out how much of your monthly payment goes to interest. Add that amount to your monthly payment so you’re paying the full minimum in addition to the interest charges. You’ll pay much less over time, and you’ll end up paying off your debt much faster.
Pay off what you can. Paying off what you comfortably can afford will always benefit you and your budget. Paying off debt sooner, while not as fun, will increase your financial freedom down the road, allowing you to enjoy even more of your hard-earned money.
Pro Tip: If you could afford to live comfortably paying your monthly debts, think about putting some (or all) of that same amount into your savings.