While setting a budget for 2016 can seem daunting, it isn’t. Creating and successfully managing a budget just takes a little planning and practice.
The first thing you should do is assess your current situation. Look through the last four months of expenses and take note. What bills seem overly expensive? Are those expensive bills necessary? Are there cheaper options? Was there a one off situation that put you over budget?
Now you have reviewed what is and isn’t working you can start looking for easy savings. There are usually a couple silly ways you waste your money that can be fixed quickly. For example, an easy change could be substituting Netflix for Cable TV.
Another way to save is to set up small manageable savings goals. If you normally buy your lunch try making on instead; the savings can really add up over the year. For example, someone who spent $40 a week on purchased lunches and now only spends $25 on home packed lunches will have saved roughly $780 by the end of the year.
Create a Budget
Now you have an overview of your current financial situation and a few savings ideas, it’s time to plan out your budget. To create a budget, experts suggest the 50/30/20 rule for your after-tax income to build a healthy budget:
- 50% Fixed costs (aka monthly bills): rent or mortgage, utilities, car payment, insurance, etc.
- 30% Spending money: groceries, haircuts, clothing, gas, entertainment, etc.
- 20% Savings: retirement fund, emergency fund, etc.
Example: if your take home income is $2,000, your fixed costs should be $1000, savings $400 and spending money $600.
Stick to your Budget
With the budget all set now comes the hard part, sticking to it. This will take some practice, but there are lots to tips and tricks to help you stay on the right path.
Budgeting is all about trial and error so don’t be surprised if you’re a little off the first few months. Just keep working at it and you’ll be a budgeting master in no time.