Practically everyone has heard of a budget and why making one is important. Having a budget can simplify your financial life and show you exactly where your money goes.
Here is how to create a budget and realistically stick to it.
What’s Budgeting All About?
The goal of creating a budget and following it is to know where your money’s going at all times. Budgeting involves the following:
- Knowing your fixed (set payments) and variable (purchases that fluctuate like groceries or entertainment) expenses.
- Seeing where your income goes. It’s essential to know what’s happening with the money that you’re earning.
- Setting financial goals for the future. When you know how much you have to spend, you can figure out how much you can save in an emergency fund or invest in your retirement.
When you subtract your total expenses from your income, you’ll see how much you have left over for savings. Make a list of all your fixed costs, like your cell phone bill, rent, subscriptions, and car payment.
You may have to estimate your variable expenses based on prior spending or set a limit. For example, if you know you typically spend $200 every paycheque for groceries, you can try to stay within this amount. If you only have $100 in the budget for weekend entertainment, you’ll need to find activities that fit within this parameter.
How Can You Create a Budget?
Creating a budget may seem intimidating, but you can do it in one afternoon. Here’s what goes into creating a budget.
- Write down your income. You have to know how much money you have coming in. Having a set salaried income makes this step easy, but if your income fluctuates, you will have to adjust your budget more often.
- List your fixed expenses, like rent, insurance, car payments, etc. These are expenses that should stay the same month to month.
- List your variable expenses, like groceries, utilities, entertainment, clothing, etc. These are expenses that will change from month to month. You can check prior bank or credit card statements to estimate how much you spend on these items each month.
- Set savings goals. Decide how much you want to set aside from your pay towards your financial goals, like retirement or building up an emergency fund.
- Add all of your fixed expenses, variable expenses, and savings goals together. If that number exceeds your income, you’ll either have to cut some savings and expenses or earn more income.
How Do You Stick To Your Budget?
The goal of a budget is to help you figure out how all your money is being used. It’s easy to lose track of your spending and find yourself with limited funds before your next payday.
Here are a few simple ways to stick to your budget:
- Be realistic with variable expenses. Many will tend to underestimate how much they spend on food and entertainment.
- Allow room for flexibility. With price fluctuations and inflation, you want to leave space for swings in either direction.
- Set limits. If you spend too much of your income, you’ll want to limit spending in categories like eating out or entertainment.
- Track your spending with your banking account. The good news is that most bank accounts will help you track and organize your spending to see where your money’s going and ensure you’re on budget.
Even with budgets, unexpected expenses can pop up that make money tight. If you’re ever short on cash before payday and can’t drastically alter your budget, try Payactiv. With Payactiv’s earned wage access*, you can get early access to the money you’ve already worked for and pay your bills on time.
