How to make a personal budget that you can live with
Budgeting is hard. Anybody who has a family budget knows how difficult it is to keep up with month after month. But the other truth about budgets? They work.
Personal budgets are more than a way to track spending. They're also a way to help plan for the future and set goals, like saving for retirement or a big purchase. If you need a budget, here's a simple guide on how to create one.
Start with your income:
A budget is more or less a measure of money in vs. money out. Your income is the starting point. Begin by figuring out your total income. If you work a payroll job, that's after-tax pay you bring home. If you work more than one job, add your net pay together. And if you're self-employed, try your best to estimate your average monthly income. Give yourself some wiggle room if your income changes from season to season.
Add up all your expenses:
The next part of budgeting is the money you spend. Start with your essential costs, like:
- Living expenses (monthly mortgage or rent payments).
- Debt payments, like on a credit card account or student loan.
- Utility bills.
- Insurance Payments.
Then, add any expenses that may change each month. This might include money spent on dining out, clothes, entertainment or subscriptions for Netflix or Spotify.
Subtract your costs from your income:
Once you have your two numbers — money in and money out — subtract your costs from your income.One of two things will happen: Either you'll have some money left over, or you'll end up in the red by spending more than you make.
You can see exactly where your money is going. And you’ll be able to see whether it makes sense to reduce spending or stash more money in savings.
Plan out the month ahead:
By this point, you might have a better idea of your personal finances. You know how much income you're working with and where you need to cut back on spending.
Looking one month ahead, create your budget. There are several ways to do this, and one is to try the 50/30/20 structure. This means:
- Putting 50% of your income toward necessary expenses (mortgage, utilities, etc.).
- Allowing 30% for personal spending (like movies or a night out).
- Dedicating 20% for debt repayments or savings.
The 50/30/20 structure is often best used as a starting point. These percentages are not set in stone. They're more like a guide toward effective budgeting. You can tinker with those levels and find a budget that works for you. The important point is that you just try to achieve a healthy balance.
Track your budgeting!
Whether you use an online spreadsheet, a journal or a personal finance app like Mint , make sure to track your budgeting and spending.
Need help setting up your budget? No worries. Try using our budget calculator and other budget-focused resources. And if you still have questions about your insurance and your budget, talk to TruStage® today.