4 Quick Steps for Establishing a Budget
1) Establish Your Goals: Write down your financial goals. Your goals should be attainable. To make tracking possible, be sure to include actual dollar amounts and reasonable time frames.
2) Know Your Income: Before you can establish your budget, you need to identify your income sources. Make sure to include only the money you receive (net pay).
3) Total Your Monthly Expenses: You’ll need to know how much money you’re spending every month. Be sure to include monthly recurring expenses such as groceries and debt payments as well as occasional expenses such as medical expenses.
4) Establish a Realistic Budget: Assess your monthly expenses using the 50-30-20 rule. According to this standard, fifty percent, thirty percent, and twenty percent of your spending should be applied to your needs (housing, food, car, etc.), wants (clothing, entertainment, restaurants, etc.), and savings and investments (retirement plan, emergency fund, extra debt payments, etc.), respectively. Consider reducing spending on items considered ‘wants’ should your expenses exceed your income.
Consider automating your budget and managing your expenses using personal finance software such as Quicken or Mint.