Are you prepared for a financial emergency? Most Americans only have between $1,000 and $5,000 in savings. Without a monthly budget, you might spend more than you save.
If an emergency strikes, you might realize you don’t have enough in your savings to cover the cost.
Don’t let that happen! Instead, learn how to put more of your monthly income into savings.
With these eight simple, smart budgeting tips, you can learn how to establish a budget and stick with it. Each month, you can add a little more to your savings account. In time, you’ll have a nest egg you can fall back on.
Preparing for the future by establishing a family budget today could give you peace of mind for years to come.
Start saving! Establish a budget and stick with it using these eight simple tips today.
1. Establish Goals
Before you start using these smart budgeting tips, take a moment to establish SMART goals. These goals are Specific, Measurable, Attainable, Results-Driven, and Timely. Establishing goals before you establish a monthly budget can help you remain on track to accomplish your goals.
About 92% of people who set New Year’s goals never accomplish them. Meanwhile, people who set specific and challenging goals had a higher performance 90% of the time.
Getting specific will help you determine exactly what you need to do to accomplish your budgeting goals.
Meanwhile, a deadline will keep you focused.
Determine why you want to start saving money. For example, maybe you want to save $15,000 before your upcoming June 2022 wedding. Maybe you want to save a certain amount for your child’s college fund.
Maybe you’re more focused on saving for your retirement.
Determine how much money you want to save. Then, set a deadline. Once you establish a deadline, break your larger goal into smaller benchmarks.
How much will you need to save from your monthly income to accomplish your overall goal?
Breaking your larger goal into smaller benchmarks will help you track your progress. If you’re struggling to meet your benchmarks, you’ll know to adjust your strategy. Making adjustments right away can help you maximize how much you save.
Otherwise, you could waste time and money on faulty budgeting practices.
Once you establish your goals, write them down. Make sure you place your goals somewhere you can view them each day. Keeping your goals within sight will help them remain top-of-mind.
2. Gather Financial Documents
Now that you know why you’re bothering to set a monthly budget, it’s time to start planning. First, gather the financial statements you’ll need, including your:
- Bank statements
- Recent utility bills
- Investment accounts
- Receipts from the last three months
- Credit card bills
- W-2s and paystubs
- Mortgage or auto loan statements
These documents will help you gain insight into your monthly income and regular expenses. The more information you can gather, the more effective your monthly budget will become.
Otherwise, you might not realize you’re spending as much as you really are.
3. Calculate Your Income
Take the time to calculate your monthly income, too.
If your monthly income is a regular paycheck, your taxes are likely already deducted. Focus on the net income (or take-home pay) amount.
If you’re self-employed, on the other hand, record your total income as a monthly amount.
You might have a variable income, especially if you work a seasonal or freelance job. In this case, use the income from your lowest-earning month within the past year. You can use this number as a baseline when establishing your budget.
You can also gather outside income sources, such as Social Security or child support checks.
Determining your monthly income will help you determine your monthly budget.
4. Track Expenses
Now that you know how much you’re bringing, it determines how much you spend each month. Look at the financial documents you gathered. Try to break your spending up into specific categories.
You can use an Excel spreadsheet to track your monthly spending.
For example, you might consider categories like:
- Household expenses (rent, utilities, etc.)
- Travel/transportation (including gas and car payments)
- Debts and loans
- Food (groceries and takeout)
You can also use this breakdown of frivolous spending habits for more information.
Organize Fixed vs Variable
Once you’ve organized your expenses, determine which costs are fixed or variable.
Fixed expenses are mandatory expenses that remain at a set amount each month. These can include car payments, rent/mortgage payments, and your internet service.
Include the standard credit card payment you pay each month as well. Look for any expenses that remain the same every month.
Include your savings and debt repayments as fixed expenses as well.
Variable expenses, on the other hand, can change each month. These can include groceries, entertainment, or gifts.
Once you’ve reviewed your spending habits, categorize items based on “needs” and “wants.” Determine which items you have to spend money on each month. Pinpoint areas you can cut back as well.
Categorizing your spending habits could help you make more informed decisions in the future.
5. Compare Income and Expenses
Once you’ve gathered information about your routine spending, compare your income and expenses. If your monthly income is higher than your routine spending, you’re at a great starting point.
You can use the extra money you don’t spend to start saving. For example, you can put this money to paying off debts or saving for retirement.
If your expenses are higher than your monthly income, you’re overspending. In other words, it’s time to make a change.
If you have more income than monthly expenses, consider using the 50-30-20 philosophy.
Prioritize your “needs” as half of your budget. Any “wants” can account for 30% of your budget. Then, allocate the last 20% to savings or debt repayment.
Set a monthly budget for each category you created. Allocate more of your budget to your “needs.”
Smart budgeting can take a while to get right. Remind yourself to review your spending habits each month. You might realize you need to spend more on a certain category.
If that’s the case, allocate funds from a different category. For example, you might want to spend less on entertainment and more on groceries.
Determine how much you’ll aim to save each month, too. Keep that number in mind as you begin using these smart budgeting tips.
6. Look for Ways to Cut Costs
The average American has over $90,000 in debt. Your debts might include:
- Personal loans
- Credit cards
- Mortgage loans
- Home equity lines of credit
- Student loans
- Auto loans
If you want to make the most of your monthly budget, look for ways to cut costs. Start by trying to pay off your debts as soon as possible. Otherwise, they could keep eating away at your budget.
Focus on the debts that have the highest interest rate first. Try to eliminate interest if you can, too. Using the “debt avalanche” method can help you minimize spending.
As you eliminate each debt, focus on the one with the next highest interest rate.
Try to reduce your taxes as well.
First, make sure you’re choosing the right filing status. Consider tax rules when you claim dependents, too. You can work with a tax specialist to make sure you’re not overspending each year.
Next, look for ways to invest the money you’re already saving.
Otherwise, review your monthly spending habits again. Where can you cut back? For example, you might want to look at the subscriptions that are set to “auto-renew.”
These monthly subscriptions can include Netflix, Amazon Prime, Hulu, and HelloFresh. Consider shutting off these subscriptions for a while.
Start buying generic brands for staple food items and cleaning supplies. Otherwise, plan your meals for the week. Cooking more meals at home will minimize your “takeout” spending.
You can also use these budgeting tools as you begin using these tips.
7. Stay Motivated
Once you establish your monthly budget, look for ways to stay motivated throughout the year. Otherwise, frivolous spending could impact your progress. You could struggle to accomplish your financial goals as a result.
Instead, remind yourself what you’re saving up for.
Consider creating a vision board. Use photos to remind yourself of the end result.
Creating a vision board is a great way to give yourself a daily reminder to remain on-task.
Remember to review your benchmarks, too. If you’re not accomplishing your smaller goals, make a change. Consider reviewing your monthly budget.
8. Track Your Progress
As you begin using these monthly budget tips, make sure to track your progress along the way.
Gather your financial statements again. Were you able to cut back spending in specific areas? Are you managing to save as much as you wanted to?
If you’re struggling to accomplish your goals, make adjustments to your plan.
Consider creating another nest egg for emergencies as well. If there’s an incident, you won’t have to dip into your savings account. Having a smaller nest egg will ensure you don’t deter from your overall goal.
Start Saving: 8 Effective Tips for Creating a Monthly Budget
Establish a monthly budget and stick with it! Start accomplishing your financial goals with these eight simple tips. Using these tips will ensure you’re prepared for a rainy day.
You can experience financial wellbeing and have peace of mind knowing you’re ready for anything.
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