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REDDITWhen it comes to how Americans handle their finances, the statistics are deeply concerning. For example, only 24% of millennials understand basic financial literacy, according to the National Endowment for Financial Education. What’s more, forty-six percent of Americans have emergency savings of $1,000 or less. That is why financial experts suggest the importance of a budget.
Whether you already use a budget planner or not, you may be looking for better tools to understand where your money is going and how you can stay on track. To help you get started, here are four steps to building a smarter budget.
Step 1: Determine the Set Monthly Income
Add your family’s total monthly income after taxes and adjustments. Consider how much you earn and calculate the total average. Just be sure to exclude all tax refunds and year-end bonuses. If you don’t receive the same amount every month, don’t include it into your set income. Once you have estimated your monthly profit, you will be able to manage your home expenses and prepare for a comfortable retirement.
Step 2: List Your Monthly Expenses
Keep track of your spending by making a list of monthly expenses. This means that you should include the monthly rent, mortgage, insurance, utilities, student loans, car payments, and childcare – the basic expenses you pay on a regular. Once you add up all the necessary expenses, you will know how much is going towards your bills versus the amount that is coming in.
Step 3: Factor Occasional Costs
You may still have an additional amount of spending outside of your monthly fees. Perhaps you have a scheduled payment for personal loans or provide an allowance for your family. Start keeping track of where that money goes by keeping a log of expenses for the next month. Once the next four weeks is over, you can use those results to determine how much you spend on different categories and what you can do to cut those expenses.
Step 4: Prepare For Unexpected Costs
Those unpredictable expenses are often the most costly out of your budget. However, they aren’t always so unexpected. Did you forget to buy a gift for your friend’s birthday party? Do you take part of an annual fundraisers that request for donations? You might have already seen these events coming weeks ago but chose to wait until the last minute to one-off these expenses. To prevent trouble in the future, prepare a special amount for special occasions instead.
If you find yourself spending more than you should that you are barely getting by, now’s the time to examine your budget and determine ways to cut costs. Whether it is slashing a few major expenses such as cable and high-end groceries, all it takes is key planning and a smart budget to help you stay in control of your finances.
