Budgeting is one of the most important things you can do for your finances. It helps you control your money, plan for the future, and achieve your financial goals. Here we help you create a budget from scratch. If you are looking for the tools and knowledge to take control of your money, this article is just for you.
Step 1: Know Your Income
The first step in creating a budget is to know exactly how much money is coming in each month or other words your total income. To figure this out, add up all the money you receive regularly. If you have a single job with a steady paycheck, this should be easy. But if you have more than one source of income, or if you’re married and both of you work, make sure to add everything up.
If your income changes each month (for example, if you work by the hour), it’s helpful to look at the last three months. Find the average of those months or use the smallest amount you made. This way, your budget will be safe, and if you make more, you can adjust your numbers later. Also if you are an immigrant living in foreign country, do check our blog titled Budgeting basics that Immigrants need to know.
Step 2: Prioritize the Important Expenses
Once you know your income, the next step is to take care of the four most important things that you need to live.
- Food – How much do you usually spend at the grocery store each month?
- Shelter – This includes your rent or mortgage.
- Utilities – Bills like electricity, water, and gas.
- Transportation – This could be gas for your car or money for public transportation.
Look at what you’ve spent in the past three months to get an idea of how much you spend on these. Keep in mind that if you are just starting to budget, you may find that you can reduce your spending in these areas. Don’t you think it is a good idea to make your grocery list?
Step 3: Add Giving to Your Budget
Many people choose to give a portion of their income to others. This could be in the form of tithing to your church or donating to a charity you care about. If this is important to you, set aside about 10% of your income for giving.
Step 4: Include Debt Payments
If you have debt, paying it off should be a big priority. Make sure you’re up to date on all your debt payments. A good way to tackle debt is by using the debt snowball method. This means listing all your debts from smallest to largest, regardless of interest rate. Pay the minimum on all debts, and focus on paying off the smallest debt first. Once the smallest is gone, move on to the next one, and so on.
As you find ways to save money in other areas of your budget (like food or utilities), you can utilize that extra money on your debt to settle it faster. Being debt-free is a huge step toward financial freedom.
Step 5: List Your Other Monthly Expenses
Now it’s time to list your other regular expenses. These could include:
- Memberships or subscriptions like gym memberships, streaming services (Netflix, Spotify), or Amazon Prime.
- Personal care costs, such as haircuts or nail care.
- Entertainment like eating out or going to the movies.
Take a look at all your monthly expenses and ask yourself if there’s anything you can cut or reduce. Sometimes cutting back on a few subscriptions or memberships can give you extra money for savings or debt payments.
Step 6: Plan for Irregular Expenses
Some expenses don’t happen every month but still need to be included in your budget.
- Car maintenance like oil changes.
- Home repairs or appliance replacements.
- Gifts for birthdays or holidays.
The best way to plan for these is to estimate how much they cost, then divide that amount by the number of months until the expense comes up. It’s also a good idea to add a miscellaneous category to your budget. This is for those little expenses that pop up out of nowhere.
Step 7: Build Your Savings
Saving money is a key part of any budget. If you’re just starting, your first goal should be to save enough for emergencies. Once you’ve done that, and if you’re out of debt, aim to save three to six months of expenses. This will give you a solid emergency fund to cover big life events like losing a job or unexpected medical bills.
To save money, take a look at the areas in your budget where you can cut back. Maybe you can spend a little less on groceries or entertainment and put that extra money into savings.
Step 8: Create a Zero-Based Budget
The last step is to make sure that you end with a zero-based budget. This means that your income minus all your expenses (including giving and saving) should equal zero. In other words, every pound you earn should have a job, whether it’s for bills, debt, giving, or savings.
If you find that you have extra money after covering all your expenses, you can choose to put it toward debt or savings. On the other hand, if you’re short, look for areas in your budget where you can cut back to make everything balanced.
It may take a few months to get used to this system, so don’t worry if it doesn’t work perfectly at first. Most people take about three months to get the hang of budgeting. The key is to stick with it, keep adjusting as needed, and stay patient.
Budgeting may take a little time and effort, but it’s worth it. By creating a budget, you will feel more in control of your money and be able to make real progress toward your financial goals. Stick with it, keep fine-tuning, and remember that every pound has a purpose.
Try downloading a budgeting app, to help you get started. With a little practice, you’ll be managing your money like a pro in no time!
Hope the blog gave you sufficient information on how to make a budget and follow it. Teeparam Exchange offers competitive rates, so that you can get better rates while you transfer money to Sri Lanka from UK.