How to Budget Your Dough Using 6 Simple Steps

Have you been wondering where the money I saved up goes? Or have been wanting to buy some cookies from that expensive bakery that you have been dreaming about for a while but when you checked your bank account, you could only see the negative bank balance?

Well, you should prepare a budget for times like these. A budget is a financial plan which can guide you to better spending. It accounts for your income and expenditures and helps you make better decisions using that data. A budget can be made for a month or a year, depending on your needs.

Now that we know what a budget is, you will be pondering, well that sounds great, how do I make it? Follow these steps to get a clearer idea of how to make a budget and manage your expenses through it.

1. Calculate Your Net Income

The first step to creating a budget is to calculate the total amount of income you make. Calculate your income by listing out your salary from a job, your side hustles, passive income, and more. The net income would be those incomes minus the taxes and more benefits which automatically get reduced, such as your health insurance plan through your employer.

If your income is irregular, make sure to account for it by listing the lowest amount from the last few months in the budget for the current month. 

2. Find Out Your Expenses

The second step is to list your expenses. These expenses can range from your fixed monthly payments to variable monthly payments. Fixed monthly expenses would be rent, home loan payments, etc. which stay the same amount every period. The variable monthly expenses would be your electricity, groceries, etc. which are variable and might change from one period to another.

P.S. Also, do not forget to always account for emergency funds, which you should save up for every month.

3. Work Out Your Objectives

Now that you have figured out your income and your expenses, it is time to make a plan for what your goal in your mind is. Is it to save up money for your children’s college funds, or is it to travel to the exotic country you have been wanting to go to?

Designate these goals into short-term and long-term goals. Some goals take a long time to reach but they will keep you motivated to save up money.

4. Manage Your Expenses

Once you have your goals in mind, it is time to manage your expenses to reach those goals. You would need to check what expenses you can reduce. Variable expenses such as gasoline might be able to be reduced if you take other means of transport, or you can spend less on ordering food.

You might need to give up on some luxuries if you are planning on saving up for your future goals. You should track every expense you make in a month and actively try to reduce it. Furthermore, you can create a daily or weekly limit on how much you can spend in a day, with some margin of error. By doing this, even if you fail, you can either catch up by reducing spending the next day or use the margin of error.

5. Adjust Your Budget

Be sure to adjust your budget according to your needs and changing goals. Track every expense you spend or income you receive and change your budget accordingly. This will help you create a more realistic budget that you can use to reach your goal. If your electricity bill comes higher than you expected, adjust your budget and save the money elsewhere. Be sure to account for changes in expenses and income.

6. Review and Create a New Budget

When the month is over, review the budget. Check that your budget and your spending are on track. Considering the variables, build a new budget that takes into account your new income or new expenses if there are any, to create a new budget for the new month. As each month, you will need to produce a new budget to keep yourself on the right track and reach your goals.

Creating a budget might sound complicated, which can be true when you are just beginning, but it can also take you a long way through managing your personal wealth. There are also many tools available online in this digital age that can help you shape a budget more easily and flexibly. If, at any point in the process, you have an eerie feeling, consult a professional advisor. Just be sure to stick to the budget that you have created and adjust it according to your needs. Good luck and good budgeting.