How to Make a Budget

Introduction

If you don’t know where all of your money is going every month then you should know that there is a serious problem. You cannot just keep spending all of your salaries before the end of the month and start using a credit card to pay the bills for a few days. By doing this you are only harming your financial life as frequent usage of credit card is one of the reasons for credit score drop. This is very bad for the future as it would be very hard for you to get loans or a new line of credit if you have a poor credit score. All the financial institutions will give you loans for higher interest rates than usual. To stop this from happening you should know how to spend money responsibly. For that first, you should know what is a budget . Without having a budget you can’t do anything.

It is very important to have a budget if you are an adult who is serious about his life. Having a budget will help you reach your financial goals in life. If you have a budget you will be spending more responsible than you are doing now. You can save money to pay off a debt or to put it in an emergency fund. If your credit score drops then you can increase it by paying off the debt in time. Paying off the debt is one of the simple ways in which you can increase your credit score. If you are bad at managing money then do not worry. Not many people are good at managing the money they have to learn it.  It is an achievable feat if you are determined.

This article is completely about how you can make a budget and follow it. So let’s dive into it.

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Track your expenses

The first and foremost thing that you should do if you want to make a budget is knowing how to track your expenses. Just think about how are you going to create a budget for you if you don’t even know where your money is going. You can only create an effective budget if you know where you spent each and every penny you earned. Tracking your expenses will give you insights into your spending habits. You will understand where you are going overboard with your money. Once you track your expenses you will have a clear idea of how much you can spend on what and where you can cut costs. You will be shocked to see the unnecessary expenditure you make. After you track your expenses you will find a lot of areas where you can cut costs. 

There are many ways to track your expenses effectively. One of the simple ways is to make a list of all your spendings. You can just take a pen and paper and list all the things you spent money on each and every day. Do this every day before going to bed as you will be able to recall each and every dollar you spent on that. The other easier and faster way to do it is by using a budgeting app. There are a lot of budgeting apps out there that are really good at tracking your expenses. All you have to do is link your account and categorize your expenses. You can even set reminders to pay bills on time. There are apps with a monthly as well as apps that are completely free to use. Use one of them to track your expenses on the go.

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Find a budgeting method that suits you

Many people think that budgeting is just allocating money for different things and sticking to the plan. But what they don’t realize is that there are many methods for budgeting. Each method is different from the other and each one has its own advantages. This is a great thing as you don’t have to follow a plan that is suggested by someone or make your own. You can make a budget that suits your personality. The main reason for choosing a budgeting method is because not everyone has the same spending habits.

Now let’s look at a couple of budgeting methods.

Envelope system

This method of budgeting is the best way for people who are struggling to control their overspending habits. The reason it is very effective is that it is also quite simple to execute. To execute this method first you have to withdraw all of your money from the account. After you do that you have to split your money into small amounts. You have to place that money in individual envelopes each one dedicated to different expenses like gas, groceries, cell phone, and others. If you run out of money in one of the envelopes you should not use credit or savings. The only thing you can do is to allocate money from other envelopes or wait till the next month. There are even applications that will help you follow the envelope method.

50/30/20 budgeting method

This budgeting method is probably the simplest way to make a budget. To follow this all you have to make sure is to keep your spendings within three main categories those 50% for needs, 30% for wants, and 20% for savings. It is not important that you follow this exact pattern. Depending on your expenses you can be a little flexible with the percentage of the amount you allocate for each category. But the most important thing you have to take care of is that is allocating money for each category. As long as you follow this method you will be saving money. This simple but powerful budgeting method will help you reach your financial goals in the future.

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Set yourself some financial goals

Setting yourself some financial goals will help you immensely in making a budget. Not only making the budget but also sticking to it. Having goals will make it easy to follow as you will be motivated to reach those goals. You will understand that in order to reach those goals you have to be more responsible with your money and save some of it. There are a few things that should be on top of your list. Build an emergency fund as it will be very useful when you are in urgent need of large amounts of money. Save money from each paycheck to build an emergency of at least $1000. Paying off high-interest debts is another reason to make a budget. This one of the easiest steps to follow for increasing your credit score. Save money for your retirement. If your employer offers you have a 401(k) then make sure you contribute the percentage of income for which you can get the maximum amount of money from your employer.

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Conclusion

Everyone must have a budget. Without having a budget it is impossible to reach your financial goals. There are lots of methods in which you can create a budget that suits your personality. But keep in mind that creating a budget is only half the task you must stick to the plan if you want results. It can be difficult if you are not used to controlling or tracking your expenses but you can easily follow the budget if you put in a little extra effort. 

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