Have you ever reached the end of the month and wondered where all of your money went? Well, you’re not alone. The United States has a huge debt problem, and people need to have a budget strategy to gain financial security.
In 2019 a survey asked if people should follow a set budget and only 25 percent of respondents answered, yes. However, when asked in a separate survey if they have a budget, two-thirds of respondents said, yes.
Based on the state of the current economy, if people were honest, they probably wouldn’t stick to their budgets. More Americans are finding themselves deeper in debt.
People that track every penny spent are able to curtail their spending habits. This creates better opportunities for building their savings.
Are you struggling with what to include in a budget? Keep reading to learn how to calculate your finances to create a budget plan.
What Is a Budget Strategy?
There are different reasons for creating a personal budget. Limited finances, a major purchase on the horizon, or saving for retirement are just a few reasons. Knowing what to include in a budget will help you reach your goal.
To start, have realistic expectations. Needing to live within limited financial means is different than trying to pay-off credit card debt.
Budgeting requires a lot of discipline and sometimes sacrifices. For people trying to eliminate debt, you will need to have a clear understanding of your spending habits. If you are trying to save money, you will need to be honest about the amount you can sacrifice each month.
If saving for a major purchase is the end game, you need to deposit the money somewhere it is not easily accessible.
Be Realistic About Your Income
One reason people overspend is they do not understand their true financial situation. There are individuals who have jobs earning X amount of dollars each year. They approach their finances with that number in mind.
We all know that your annual income is not your real income. There are taxes, benefits, and other deductions taken out before you receive your pay.
There may be other monies coming in from a part-time job, child support, or other sources. These amounts often get overlooked because they have a specific purpose.
Having a budget strategy will help you get real about the actual amount you’re bringing home. It will also show you if you need a better paying job for the lifestyle you are living.
Pay Yourself First
Although you are on a budget, it is still important to have personal savings. This can be in the form of a personal savings account or a 401K retirement plan.
Successful budget strategies ensure that you are not spending every penny you earn. Instead, it makes room for your financial future.
Even if you have a company backed retirement plan, you want another savings source. It needs to be one that does not have tax implications or other penalties if you have to make a withdrawal.
Create a Budget Spreadsheet
The good old-fashioned way to budget is with a spreadsheet. It is quick and easy to set-up and doesn’t require any bells and whistle. Once you have a list of what to include in a budget, set up your line items.
Choosing a program like Microsoft Excel will allow you to set-up calculation formulas directly into the spreadsheet. Next, enter your line items.
It is important to save all of your receipts and enter every expense as they occur, or at least daily. Try using your bank debit card to make purchases. This way, if you misplace a receipt, you still have a record.
At the end of the month, the ending balance on the spreadsheet should mirror the balance on your bank statement.
Use a Budget App
Digital technology has created an alternative to the budget spreadsheet. Budget apps are becoming increasingly popular with 63% of smartphone users tracking their spending this way.
The most important feature of these apps is the ability to connect with your banking institution. Your budget is updated in real-time. This limits your manual input to cash exchanges.
Apps come with many useful features to help track budget allocations. The really good ones come with a financial dashboard offering insights to help you stay on track. There are also reporting capabilities that come with the ability to print out data.
Utilize a Financial Calculator
Another useful tool in budgeting is financial calculators. There are calculators for everything spending related. These apps help you chart out what it is going to take to reach your financial goals.
They can help you with budget strategies. The calculators will show you how much and how long it will take to pay-off credit card debt. It can also help you plan for a dream vacation.
Preset Monthly Spending
Getting a handle on your finances comes with self-discipline. It’s not just about tracking your spending habits. To budget successfully you’ll need to be disciplined and set monthly spending limits.
Your all-inclusive monthly spending should be capped at 80% of your after-tax income.
It’s okay to reward yourself for reaching your budgeting goals. The reward doesn’t have to be an extravagant purchase. You can treat yourself to dinner or buy yourself a book on financial success.
Don’t splurge on a large purchase that will blow your budget. Keep the cost of your reward in line with the amount you came under-budget.
For a large purchase include a set amount in your budget that will be deposited into a special account. Don’t touch the funds until you have saved the amount needed to buy yourself the gift.
Ready, Set, Budget!
When you have a budget strategy, it is easier to track your spending. Implementing the steps listed above is a great start. Don’t quit if you go astray, each month is a new opportunity to get it right.
We have more money tips waiting for you. Go to our articles under Finance to learn more.