How to Set Up a Budget in 4 Easy Steps
If you ask someone about how to set up a budget, more often than not the stories you get back will be about complex calculations, keeping track of every cent you spend in complex spreadsheets or across huge accounting books, and being forced to live the life of a hermit with no luxuries or fun allowed.
But budgeting doesn't have to mean any of that.
Here are four simple steps you can follow to set up a budget that won't take you more than an hour or two to do.
1) Work out your average income for a month.
You need to know how much money you get coming in every month (after tax of course).
In some cases this is very simple (you just get a regular pay packet every month), but if you have a job with irregular income you will need to come up with an average figure.
And don't forget that you may have other sources of income besides your regular job - be sure to include that income, if any.
2) Work out your average expenses for a month.
This can be as detailed and accurate as you want.
Getting everything down to the nearest cent may give some satisfaction, but is rarely necessary.
For variable expenses, write down a best-estimate for the month.
Be sure to create an "irregular" expenses category, for things that you only have to pay once or twice a year (perhaps subscriptions, or car servicing costs), and allocate a monthly figure to that category.
3) Make sure your income is greater than your expenses! If it is - great! If not, you need to either work out what expenses you can reduce (but don't try to throw away all your luxury or "fun" expenses), or try to figure out a way to earn more money.
4) Allocate your money each time you're paid.
Every time you get paid, put aside the amount of money you worked out you need to pay your various bills and expenses.
You can put it in a separate bill paying account (and just use that account when paying the bills), keep the cash in a box in a safe or hidden under the floorboards, use the envelope budgeting method - whatever works for you.
The important thing is to remove the temptation of spending that money.
Once you have separated off the budgeted money, anything left over is a bonus! Ideally you should put some of it away to build up a savings account, but the most important thing is you have enough money from now on to cover your bills without rushing around trying to cover the expense.
After you've gotten used to this simple budgeting, if you want you can start to refine the process.
But if this basic strategy works for you, why change it?
But budgeting doesn't have to mean any of that.
Here are four simple steps you can follow to set up a budget that won't take you more than an hour or two to do.
1) Work out your average income for a month.
You need to know how much money you get coming in every month (after tax of course).
In some cases this is very simple (you just get a regular pay packet every month), but if you have a job with irregular income you will need to come up with an average figure.
And don't forget that you may have other sources of income besides your regular job - be sure to include that income, if any.
2) Work out your average expenses for a month.
This can be as detailed and accurate as you want.
Getting everything down to the nearest cent may give some satisfaction, but is rarely necessary.
For variable expenses, write down a best-estimate for the month.
Be sure to create an "irregular" expenses category, for things that you only have to pay once or twice a year (perhaps subscriptions, or car servicing costs), and allocate a monthly figure to that category.
3) Make sure your income is greater than your expenses! If it is - great! If not, you need to either work out what expenses you can reduce (but don't try to throw away all your luxury or "fun" expenses), or try to figure out a way to earn more money.
4) Allocate your money each time you're paid.
Every time you get paid, put aside the amount of money you worked out you need to pay your various bills and expenses.
You can put it in a separate bill paying account (and just use that account when paying the bills), keep the cash in a box in a safe or hidden under the floorboards, use the envelope budgeting method - whatever works for you.
The important thing is to remove the temptation of spending that money.
Once you have separated off the budgeted money, anything left over is a bonus! Ideally you should put some of it away to build up a savings account, but the most important thing is you have enough money from now on to cover your bills without rushing around trying to cover the expense.
After you've gotten used to this simple budgeting, if you want you can start to refine the process.
But if this basic strategy works for you, why change it?
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