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9 Ways to Create a Monthly Budget if You Don’t Have One

For some people, budgeting is a difficult and scary prospect. The thought of allocating your income into categories can be a daunting task. Most of us consider budgeting from a negative perspective. The thought of not having our creature comforts – like morning coffee or play money – can make budgeting seem not so user friendly. The trick is to change your thinking around to the positive and realize that if you have a budget you can factor in those things you enjoy, and rest assured your bills are covered too. It should also include a certain amount to be set aside for savings. After all, at some point you will reach retirement age and you need to be ready when that time comes.

1) 50/20/30 Method

Here’s a relatively simple method which was made popular by Senator Elizabeth Warren, a bankruptcy expert. The plan is 50% of your income should go to essentials. This means your basic bills that are necessities to maintain your household. This includes rent or mortgage, heat and electricity, phone and Internet services, credit cards and car payments, insurances and so on. The next step is to set aside 20% for investment savings. This could be a 401k, an interest-bearing savings account like an IRA, and reducing debt such as student loans and credit cards you may have maxed out. The last 30% of your income is then reserved for personal spending. This can include dining out, entertainment, vacations, etc. It should also include creative ways to cut down on spending by shopping smarter – such as shopping the sales and using coupons for groceries.

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2) Manage Fluctuating Income

Some people may not necessarily have the same paycheck from week to week. This can make budgeting a bit of a challenge. If you work for yourself, there are some ways to make a manageable budget. The first thing is to note your average net income. Then make a list of your essential expenses – what you need for recurring bills each month – and compare it to your average net income. Do you keep track of your time? After all, time is money as they say. If you need to increase the amount of work time to adjust for more income, it’s recommended that you plan ahead. This way you won’t fall behind on your basic bills. Once you have your basic bills covered, make a list of things you want – but may not necessarily be essential to have. Keep savings in mind with what you have leftover.

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3) Track Your Spending

If you don’t know how much you spend, it may be difficult to create a budget. Experts advise keeping track of your spending for a month, so you can see what your patterns are. You may be amazed at how all those little purchases add up! When you’re tracking your spending, make a list every time you buy something. Keep the list in categories so at the end of the month you can add them up and see where you’re at with spending. List all your fixed expenses first; those bills which recur monthly. Next, list all your fluctuating expenses. These include gas, dining out, entertainment and things that vary from month to month. At the end of the month, add it all up. Then you’ll be able to see where you can cut down and possible add to your savings as a result.

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4) Make a Plan

Once you’ve completed a month of tracking your expenses, it’s time to make a plan. With the information you’ve gathered, you’ll be able to see how much you need for necessities, and how much you spend on non-essentials. Use this information as a guide to formulate a budgetary plan. You’ll be much better able to predict, with a fair level of accuracy, where your money is going each month. Once you’ve included your fixed expenses, you can continue tracking your variable ones if they tend to change often. You can even go as far as to break your non-essential expenses into categories of absolute needs, and those that are just wants. From there, make a wish list. Keep it handy and each month pick something from the list. That way you don’t buy everything at once and can therefore add to your savings.

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5) Set Goals

Once you’ve organized all your expenses, it’s time to set some goals. These can be long or short term. Short-term goals should be planned to be accomplished in a year’s time. Long term goals can include things like retirement savings, planning for your child’s college education, or buying a bigger house. Your goals need not necessarily be lofty. They also don’t need to be cut in stone. For example, you may have the goal to reduce your credit card debt. Here’s where you can take some of your variable expense money and add a little each month to your credit card payment. This will help to reduce the principal as well as the interest in the long-term. This can be applied to any installment bill you’d like to pay off sooner.

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6) Adjust Your Habits

Once you have all the information needed to formulate your monthly budget, it’s time to look at your spending habits. Are there things you can reduce or buy less frequently? Even if you look to snip small things here and there, you’ll be amazed how fast those add up. How often do you eat out? Can you go on a night where they have a price fixe menu instead? You can also look at your fixed monthly expenses to see if there’s anything you can reduce. Do you have every premium channel in your cable package? Even if you reduce your bill by $50, that’s a $600 savings at the end of the year. Or perhaps you’re paying for extra data on your cell phone which you’re not using. The point is, scrutinize everything and you may be surprised how much you can save.

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7) Don’t Stress

If you’re not accustomed to working with a monthly budget, don’t stress out. It may take some time to adjust to managing your money this way. If you feel pressured about it, take it in stages and take your time with it. You could start out by just making a list of all the bills you have on a regular monthly basis. Then make sure you’ve got all of those covered. It may take some time to adjust to changing your flexible spending habits. Start by making small changes. Can you make coffee at home and get yourself a good thermal to go cup? You might be surprised how something that small can add up in the long run. Some places will even give you a free refill if you have your own cup. Don’t get overwhelmed by the prospect of change. Take it one step at a time.

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8) Use a Spending Analysis Tool

If you feel overwhelmed at trying this on your own, use an app to help you. There are plenty which can take the pressure off what may seem a laborious task. Many of these apps are free to download to your iPhone or Android. So, let your smartphone get a little smarter and do the work for you! This can save you time and frustration as a result. Once you set the app to automate your spending, you’ll be able to identify where you may be wasting money, and can therefore make some adjustments. This way, you can optimize your spending and factor in a savings plan as well. There are also apps to assist you in paying down debt, avoiding over draft fees, and generally assist with creating a greater financial health. There are numerous choices, so read the user reviews before you decide on which one.

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