Part of reaching your income goals is saving money. In fact, ask any multi-millionaire how they got to where they are and you’ll find that they have been prudent with money for most of their life.
Making a budget is part of that journey.
Net income is the first step.
A budget is based on your net income. The amount you keep after taxes and deductions for things like pension plans and health insurance are your take-home pay. Your total salary could lead to overspending if you focus on that instead of your net income. Keep detailed notes of your contracts and pay if you’re a freelancer, gig worker, contractor, or self-employed to help keep track of irregular income.
The second step is to track your spending
The next step in making a budget is to determine where the money is going once you’ve worked out how much is coming in. You can find out where your money is going by tracking and categorizing your expenses.
Start with your fixed expenses. Typical bills include rent, mortgage, utilities, and car payments. After that, list your variable expenses – things that fluctuate from month to month, like groceries, gas, and entertainment. You might be able to save here. If you have a credit card or bank statement, you can check it for itemized expenditures.
Whatever works for you — a pen and paper, an app, your phone, or a budgeting spreadsheet or template –keep track of your spending.
Make sure your goals are realistic
Prepare a list of your short- and long-term financial goals before you start tracking info. Your short-term goals might be setting up an emergency fund or paying down credit card debt. Long-term goals, like saving for retirement or your kid’s education, take decades.
Setting goals when making a budget doesn’t have to be complicated, but identifying them can help motivate you. A vacation may motivate you to cut spending, for example.
Plan your strategy
What you spend versus what you want to spend is where everything comes together when you’re making a budget. Using the variable and fixed expenses you compiled, estimate your future spending. Assess your priorities and net income based on those results. Set realistic and specific budgets for each expense category.
If you wish, you can even further break down your expenses into necessities and wants. If you drive to work every day, gasoline is a necessity. Streaming subscriptions, however, might be considered wants. In order to redirect money to your goals, you need to know this difference.
Budget your spending
You are now able to make any necessary adjustments as a result of documenting your income and your spending so that you don’t overspend money and will be able to put it towards achieving your goals.
Cut your “wants” first. How about a home movie instead of a movie night? After you’ve adjusted your wants, look at your monthly payments. Sometimes a “need” is just a “hard to let go of.”
Try adjusting your fixed expenses if the numbers still don’t add up. What if you shopped around for a better auto or homeowner’s insurance rate? You’ve got to weigh your options carefully when making such a decision.
Saving even a little bit adds up. Making one small adjustment at a time can add up to a lot of extra money.
Regularly review your budget
You should review your budget and spending regularly to make sure you’re staying on track. Getting a raise, adjusting your expenses, or reaching a goal will change your budget. You should check in with your budget regularly for whatever reason you have.
I hope this post gave you some ideas on how to start saving your money. If you want to dive deeper, try Perpetually Broke, by Tom Cromwell.