How to Create Your Own Budget
Creating a budget isn’t challenging. Sticking to it, however, is the hardest part. When setting your budget, the most critical aspect is staying reasonable and attainable. For example, it’s almost impossible to split your budget 50/50 into only essentials and savings.
Before diving in, remember that your budget is not set in stone. Expenses and life happen, so leave room for adjustment.
Here are three more tips for creating an effective budget.
1) Set your goals. This is entirely up to you. Save for a house, retirement or start a college fund. Having clear financial goals in mind will help you stay on track. Here are a few more financial goal ideas: pay down credit card debt and establish an emergency fund.
2) Know exactly how much you earn. Use last month’s bank and credit card statements to calculate how much you spend. After that, go back through to separate the wants from the needs. In other words, the essential spending from the nonessential.
3) Now, you’re ready to set your budget. By going through last month’s expenses, you can determine what’s realistic by dividing between essentials, nonessentials and savings. One of the most popular budget templates is 50/30/20, where 50% goes toward necessities, 30% is allocated for nonessentials and 20% is funneled into savings and paying down debt.
Here’s what it looks like:
- 50: Housing, bills, groceries, vehicle costs and other necessities
- 30: Nonessentials, such as entertainment, eating out, vacations
- 20: Savings and paying down debt
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