How Can You Plan a Realistic Budget to Save Hard-Earned Dollars?
Today we have another guest post written by Good Nelly. Do you think budgets are sexy? I hope you do after reading this highly informative post on how to create a realistic budget! Take it away, Nelly.
It is a wrong notion that earning a comparatively high income automatically helps you to save a decent amount and you can avoid debt. Many high-salaried people have to deal with debt problems and can’t save what they want to.
Why?
The reason is, no matter how much you earn, you need to plan a realistic budget to save a considerable amount on a monthly basis and avoid debt.
First of all, you need to understand that budgeting your money is not a tough job. All you need is a little patience and proper planning.
Here is how you can plan a realistic household budget to save money.
List your income from all sources
Do you know your overall household income? Are you sure?
You might be concentrating only on your paychecks and missing out the extra income from other sources.
So, take into account both your and your spouse’s income from all sources when you’re planning a household budget.
You might be missing out the yearly bonus and other perks. Also take into account income from other sources like interest, rental income, dividends, and so on.
If they’re more or less the same every month, you can include it in your monthly budget. However, you can keep it out from your monthly budget and save that amount entirely.
Calculate your overall monthly expenses
List down your expenses. To do so, it is better to take the average for the past six months. Make sure you don’t forget a single bill.
As I told you to include your yearly income into your monthly income, likewise, include your yearly expenses in your monthly expenses, too.
For example, if you plan to spend about $1200 during the holiday season, include about $1000 in your monthly budget.
Now, subtract your expenses from your income and see whether or not you’re getting a positive number. If you’re not happy with that, you need to work on your budget.
Even if you’re able to save an amount, rework on it and plan a realistic budget that will help you to have a better financial future.
Set realistic goals with a definite time period
“If you want to live a happy life, tie it to a goal, not to people or things.”
Unless you have goals, you won’t have the determination to achieve it. Setting goals can help you make smart financial choices.
It can be paying off debt, having an emergency fund, buying a house, saving for retirement, and so on.
If you have a long-term goal, you need to break it down to achievable short-term ones.
Determine your fixed and variable expenses
Next comes determining your recurring and occasional expenses. Some of your monthly expenses remain fixed such as your mortgage payments, rent payments, and so on.
Some of your debt payments like your credit card payments are usually not fixed. It varies from one month to another. However, you can keep a check by charging your cards for not more than a specific amount, which you fix, as per your budget.
However, if you’re struggling with debt and searching for the ways to get out of debt, then you know that you can allot a fixed amount to repay your multiple debts.
How is this possible? You have to take recourse to consolidation. Irrespective of the consolidation method you choose, you need to pay a single amount towards paying back your multiple unsecured debts.
You can also opt for settlement if you can’t pay back the debts in full. However, if you want to make a single payment towards settling your multiple debts, you’d have to enroll in a settlement program and repay debts with complete professional help.
Identify your needs and wants
When you’re not happy with your present budget and thinking about how to budget money, you need to differentiate between your needs and wants.
Needs are which you can’t live without and shouldn’t compromise with. Needs are things you need for survival like food, water, clothes, shelter, and so on. On the other hand, wants are things you need to enjoy.
For example, you need basic clothing like winter clothes to keep you warm, but buying designer clothes is your want.
So, you can’t splurge on satisfying your wants.
Take into account your seasonal expenses
We all have to deal with seasonal expenses like holiday expenses, insurance payments, planning vacations, celebrating occasions like birthdays, anniversaries, etc. These are the times when you can’t maintain your budget. However, you can include these things in your budget.
How?
As already mentioned, you can add your overall annual expenses and divide it by 12 and include it in your monthly expenses. Doing so, you’ll be able to maintain your monthly budget.
Redesign your budget as much realistically as possible
You can be happy by planning a budget which can help you save a lot, but if it’s too unrealistic, then it will do no good. You won’t be able to follow it.
So, it’s always better to plan a realistic budget. Try to cut down your expenses slowly; otherwise, you won’t be able to follow it.
Out of the different budgeting strategies, I like the 50-30-20 rule. It helps irrespective of whether you earn more or a little less.
In this strategy, you denote 50% of your after-tax income towards your spending, not more than 30% to satisfy your wants and 20% for your savings and debt payments, if any.
Start following your budget
Once you plan your new budget, start following it. Record each and every expense.
If required, you can take the help of an online budget planner and record everything online. Such an app can also show you in what categories you might be spending more so that you can reconsider it if required.
You will find budget planner worksheets online at free of cost.
Track your progress and keep a record of it
Do not start modifying your budget just after the first month. Record your spending for a couple of months, and then if required, revisit your budget and make modifications if required.
Even if you’re able to plan a realistic budget, it’s not the ultimate one. Remember practice makes perfect. So, revisiting and modifying it will help you plan a realistic budget that is suitable for you.
Also, you need to make modifications with lifestyle changes or other issues. For example, you need to make certain modifications when a child is born or you’re dealing with debt issues.
Before concluding, I would like to mention that give importance to an emergency fund. It is a great savior to keep your budget intact when a car breaks down or you have to do minor repair work at home. So, include an amount in your monthly budget to contribute towards your emergency fund and never use it until it’s a real financial emergency. Do not even think of it for shopping. 😀
So, all the best for your realistic budgeting!
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Author: Jerry
Jerry is a Business Insider Contributing Writer who is obsessed with personal finance. He believes you can improve your financial situation by applying principles taught by the financial independence community to your financial life.
If you are having trouble saving, he recommends that you join the SaverLife Savings program where you can get a $60 reward after six months (no income requirement). All you have to do is put a minimum of $20 a month into a savings account. Easy, right?
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Great post! It’s very well laid out. I agree when you said it is all about planning. High earners do not necessarily have high savings. They deal with debt too. Some of them are even living paycheck to paycheck.
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