5 Steps to Create a Budget
Whether you are a single person living alone or a breadwinner of your family, creating a budget is essential to survive your adult life. You should learn to create a budget for you to be able to know your financial status. If your income is just enough to make ends meet or if you are splurging too much thus you can’t save, Here are the things you can do.
5 Steps to Create a Budget
Step 1: Know your Net Income
How you may ask? Write down your fix income that you receive per month. Make sure to deduct all the taxes, government pension and other deduction on your payslip. Yes! just focus on your take home pay. If you will rely on your salary as per your contract it might give you an impression that you are getting more without realizing that there are deductions you don’t have a control.
Step 2: List all your bills and expenses
After knowing your net income, this is the time you should also take note of all your monthly bills and expenses. List those that are fix first like electricity bill, water bill, internet bill, insurance, rent and student loan if you haven’t paid for it yet. If you need to borrow for school with ease then you should do your best to pay for it when you can. Afterwards, list the estimated amount you pay for food, groceries, gas or transportation allowance and other stuff. Here, you will be able to check if you can cut back from spending on food or drinks.
It is advisable to record all your spending in a day to check where you spend your money most of the time.
Step 3: Think of a Short and Long Term goals
Now on this 3rd step, we need to list down our goals and things we wanted to achieve from doing this thing. We need to know our short and long term goals. Short term are those goals that are achievable around 1 to 3 years and long term can be 5 years and more. Doing this is exciting or frustrating at the same time. Imagine putting a vacation trip on your short term goal but upon checking your income less expenses you realized that you’ll be able to save after 4 years, isn’t that frustrating after being excited?
Besides a well deserved vacation, you can also list down having an Emergency Fund. Now that you know how much is your monthly expenses, you should consider saving up at least 6 months of that amount for emergency. You could also include having a life insurance as your goal to achieve if you don’t have one yet.
For the long term goal, having your own house is a nice goal to achieve instead of renting that just goes to waste since the house will not be under your name. Another one is having your own car and/or building your own family in the future.
Step 4: Stay on a Budget
Now that you know your spending habits and what you want to achieve, you should now discipline yourself to stay on the budget. This is hard, I know, but you should focus to reach your goal. If you want to save more, then check which part of your expenses you can lower or totally cut down to be able to save. Perhaps you don’t need a new pair of shoes or bag 🙂
If you can, you may find other ways to earn more, a sideline perhaps to increase your savings monthly.
Step 5: Reward yourself for doing a good job
This may sound ironic since our topic is about saving and budgeting, but I still want you to enjoy life. There are a lot of free things that you can do without touching your budget. Like reading books in a bookstore, or eating a piece of bread while sitting on the park. Just enjoy life.
Jane Perez Borja says
Thank you for sharing this helpful information on how to create budget! This is noted mommy!