Do you have financial goals in life? Maybe you want to buy a house or get out of debt. If you need to achieve any financial goals, you’ll need a budget to get you there. A personal or business budget is a way to track your expenses and income for a set period, monthly is the most common. Don’t view budgeting as negative but as a means to achieve financial goals. Bear in mind there are multiple ways to make and keep a budget. Here are a few steps to get started.
Step 1. Find and Gather all Your Financial Paperwork
You will need:
- Bank statements
- Recent utility bills (electricity, water, gas, etc.)
- Monthly bills (mortgage, car, Netflix, student loan, etc.)
- Any receipts for the last three months
The more information you have the better so you know where your money is spent. This gives you a monthly average and a starting point.
- Add Up Your Income
How much is your monthly take-home pay on average? If you have income such as Social Security, stocks, pension, etc. that’s income. The best rule to follow is to use your net income when finding your average monthly income. You may have to go back three months to get an average.
- List Your Monthly Expenses
These are all the expenses you have each month. For example:
- Mortgage or rent
- Car Payment
- Credit Card Payment
- Dining Out
If you spent money, then it’s an expense. Use online banking, bank statements, and receipts to track your spending.
- Find Your Fixed and Variable Expenses
These two types of expenses are easy to determine. A fixed expense is something you pay the same amount each month. The best example is your monthly car or rent payment. A variable expense will change monthly as gas, groceries, eating out, utilities, etc. It’s best to find an average for each variable cost so you can know how much to estimate for each cost.
- Add Up Your Monthly Income and Expenses
This is usually the shocking part of making a budget for people. Don’t be surprised if your expenses are more than your monthly income. If your expenses are more than your income, you are likely overspending and will need to adjust your spending habits.
- Adjust Your Expenses
Now, you know what your average expenses are you can start looking for areas to trim or cut out completely. You can pack your lunch instead of eating out at work. Hit the sales rack instead of paying full price. You will be surprised where you can trim or cut expenses. It takes discipline and time to change how you spend money.
- Set Up Fun Money
Give yourself a little fun money to spend without feeling guilty about it. You could use it on dinner out or that watch you’ve been wanting. Keep this part of your budget reasonable, don’t overspend.
- Pay yourself First
When you get paid put money in a saving or rainy-day account. You want to build a nest egg so you can build wealth over time.
Setting up and sticking to a budget is will take time, effort, and energy. It could take anywhere from two to five months to get a budget working for you. You will need to track and keep up with what you spend your money on. A budget is a living document that will need adjustment each month. Take the time to make your budget now so you can achieve your financial goals. SWVA Tax & Accounting is here to help with all your financial needs. SWVA Tax & Accounting is a full-serve accounting firm that specializes in the needs of small businesses. Call us at 540-250-3198 or book online to get started today. We’ll run the numbers, while you run the business.