Whether you're just starting with your budget or you've been at it a while, creating a budget is a key part of your overall financial well-being. Often, we don't have a plan for money and hope it works out. Budgeting is the first step toward financial health. Creating a budget doesn't have to be overwhelming. It can be pretty simple and straightforward.
1. Figure out your net income
When looking at your income, there are two key terms to know: net income and gross income. Your gross income is how much you're earning before your employer makes any deductions for things like taxes, social security, health insurance, or other programs they may offer. Your net income is the amount you take home after those deductions. When working on your budget, you'll want to know your net income, as it will be your starting figure.
2. Take a look at your expenses and your spending
This is the more work-intensive part of your budget: figuring out how much you need to spend in a month. You'll need to determine your fixed expenses. These include car payments, groceries, utilities, childcare, and rent. While your utility and grocery bills can fluctuate, these are all expenses you know you will have each month, and you know approximately how much they will be.
3. Figure out your savings and debt priorities.
Once you've determined how much in fixed expenses you'll spend each month, subtract that figure from your net income. This amount is how much you have left for savings, extra debt repayment, and discretionary expenses. This is your disposable income.
| Example: | |
|---|---|
| Net Income: |
$1600 |
| Fixed Expenses: | -$800 |
| Disposable Income: | $600 |
4. Actually follow your budget
At the end of the day, you can also think of budgeting as being more intentional with your spending, saving, and debt payment habits. Furthermore, just as small expenses add up quickly, so do small savings. Sticking to a budget at first might feel like a significant adjustment, but it will serve you and your family better in the long run.
