Creating a monthly budget is something that many people do today to help them figure out where they are spending money and to reduce their spending and increase their savings. To start planning a monthly budget, the first thing you need to know is where you are spending all of your money each month. Things can cause you to adjust your monthly income also. For example, I once went into an upside down car loan and because of that I had to adjust my budget.
Create a log of your spending for at least a week but ideally an entire month. Include every item such as gasoline, lunch and even that candy bar out of the vending machine at work. Usually when you start keeping track of your spending you realize that it is the very small purchases that add up to quite a big number throughout the month. If you are only able to keep a log for a week, you’ll need to multiple these expenditures by four to get an approximate total dollar amount for the month.
Once you have this log, you need to also figure your monthly income. For some, a budget is created to get their finances under control. For others, it is created because they are concerned that at the end of the month there will not be enough money left over. If you fall into the first category, you are ready to take your income and your expenses and start building a budget. However, if you fall into the second category you will need to analyze your spending a bit more to see where you could start to reduce expenses.
Another important item to consider when you are logging your spending is some of your bills may not be a monthly payment. Some may be quarterly, every six months or once a year. For these expenses, you need to take the total yearly cost and divide by 12 to add that expense into your monthly budget. By budgeting for a big expense each month, you are better prepared when that bill comes in the mail. And we all know that it will come in the mail. It seems that only payments are lost when it comes to mail, never the bills.
A good reason to create a monthly budget is to track your spending and ensure your bills are getting paid on time. Falling behind in your bills is not only stressful, it can also hurt your credit score. So prioritizing your bills is very important. Making sure you have enough income to cover your bills is also important. Creating a personal monthly budget will help with this as well. Many people are finding themselves in a situation where their monthly income does not cover their monthly bills. Creating a budget can pinpoint the problems and help you get into a better position to handle these things. Planning ahead for bigger bills also can help you be prepared when the bill comes due as you have put away the money throughout the year to cover it.
Once you have gathered all of your information, it is time to start looking at your spending and where your money is going. If your goal is to building your savings, then you will need to prioritize your expenses and see which things you can do without or can cut back on. The first thing to remember is that some of your bills are necessities while some are wants. So when looking over your spending log, identify things that are needs and things that are wants.
Groceries, housing, utilities and transportation should be listed as needs. You need food to eat, you need a place to live, you need water, heat and lights and you need transportation. Things such as eating out, new clothing, and cell phones are wants, not necessities. Although many think that a cell phone is a “must have”, it is a “should have” or “want to have”. Cell phones are a convenience item, but you can survive without them.
Other things that may not be a monthly bill such as car insurance, house insurance, medical insurance and others are things that generally are not a monthly bill. These things can happen quarterly, every six months or yearly. It is important to budget for them if the income is available each month to avoid having to find a large sum of money when the bill comes due.
If you are only trying to get your finances under control, you don’t need to take any further steps after you’ve created the budget and how much you can spend in each area. If you are trying to establish a higher rate of savings, you will need to budget in more money to be set aside for savings. If you are concerned about running out of money before the bills are taken care of, you will need to carefully look over each item to see where you can reduce spending. Eating out is a common area where people spend far more money than they realize. Carrying a sack lunch to work saves quite a lot of money in a week.
As mentioned earlier, those candy bars and quick snacks out of the vending machine add up quickly as well. One snack at 75 cents each day for five days equals $3.75 a week. Multiple that by four weeks in a month and that equals $15 a month. Over a year, that results in $180 spent on vending machine snacks. Small amounts add up very quickly and can result in very large amounts of money being spent without realizing it.
Reducing other costs such as heating and electric can prove to be difficult. However, turning down the thermostat one degree can result in a huge savings over time. As everyone knows, chargers and things of that nature left plugged in when not in use also uses additional electricity. Once you are finished with your chargers, unplug them from the outlet. All devices of that nature draw small amounts of electricity even when not in use. Unplugging them will reduce your electrical costs greatly. By doing these two small things, you will begin to see a reduction in these costs which will help with your overall budget.