These simple habits help you maintain financial stability and achieve your financial goals. By quitting habits that lead to unnecessary spending, you can save more money for emergencies, investments, and future plans. Taking control of your finances through these simple ways can bring peace of mind, reduce financial stress, and improve your overall quality of life.
1. Calculate Monthly Income
The first thing you’ll want to do when you get started with your budget is get your monthly income together. Knowing accurately how much money you make per month can help guide your decisions.
When you figure out this amount remember to look at your take-home pay after taxes if you have a regular W-2 job. If you have several income sources, add up everything you earn after taxes together to get your total monthly income.
2. Add Fixed Expenses
Once you’ve calculated all your income, you’ll want to add up all your fixed expenses. Those would include how much you spend on rent or pay for a mortgage, student loans and car payments. These are expenses that you pay regularly every month and don’t fluctuate too much.
Take a look at past bank statements and payments to get an average for those. Then typically, I like to add 10% – 15% extra to what the average cost per month is on those. As you might be less or higher on a given month, this gives you some wiggle room.
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3. Allocate Your Budget
Subtract your fixed expenses from your monthly income and this is the total dollar amount you have leftover to spend and save for the month. You then want to allocate this remaining amount to your “wants” and savings or other investments.
Be realistic with how much you spend on each category: once you run out of money for one category, you won’t have any money left if you want to stick to your budget. If you’re not sure how much to allocate for each category, check your bank statements over the past months to see how much you usually spend.
4. Monitor Your Progress
Often, it’s easy to get started but then fall back into old financial habits. Instead, it’s important you dedicate time potentially each week to go over your plan, spending, savings, etc. for the past week.
Additionally, your goals will change overtime and so can your income or expenses. Which means how you allocate your money will need to be altered as well. Keep tabs on your progress and revising your budget can ensure you don’t fall behind!
5. Record Your spending Habits
Whether you are manual writing this down or using software to help, record your spending meticulously. Yes, it can be tedious but if you know you have a spending or debt problem currently it can be a financial lifesaver! Over time as you get better with finances and managing your money, you can probably step back a bit.
6. Lower Fixed Expenses
If you realize that your expenses are too high and that sticking to a budget will be difficult, it’s time to look into lowering your expenses. Start by looking at your fixed expenses: is your car payment too high? Could you maybe refinance your house? Or move to a lower cost of living area?
Lowering fixed expenses will decrease the pressure on your budget and free up more money to focus on goals such as paying off debt or saving for retirement.
7. Manage Wants
Look at previous bank statements and see if there are any categories where you are overspending on. If there are certain categories where you think you could cut back, it’s worth trying to lower your optional expenses so you can free up more money. Wants are the reason many overspend and wreck their budgets or cause more debt.
8. Save for Goals
Your financial goals will depend on your own wants and needs. These are goals that help you focus on the bigger picture and prepare for the future. This could be paying off your student loan debt, saving up for a house deposit or reaching your financial independence number!
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