Are you looking to manage your finances but don’t know where to start? Creating a budget plan is the first step to determining how your money is spent, putting you in control of whatever money you have. With the budget plan in place, you should be able to live within your means and have something to save for a rainy day. The only trick here is to devise a budget that works best for you. Below are a few tips and steps to help you develop the perfect budget.
 

Step 1: Know Your Net Income

Are you salaried, working part-time, or working freelance with an irregular income? Whatever your income, you need to calculate your net income, or at least average income, to develop a reliable and working budget. When creating the budget plan, subtract all deductions (taxes, social security, 401(k), and spending allocations) from your gross income. Only after all the deductions have been made will you have something concrete (net income) to work with. If the final number seems less than what you anticipated, picking up a hobby or talent to supplement your income might help a little.
 

Step 2: Keep Track Of Your Spending Habits

The next step to creating the perfect budget plan is to identify your expenses and categorize them accordingly. Listing all expenses you might have makes it easier to see where most of your money goes and the best areas to reduce or cut spending altogether. Fixed and recurring expenses need to come first on your list of expenses. These include utility bills, mortgages, rent, car payments, and loan payments, among others. It might be almost impossible for you to cut down on fixed expenses, which is why these need to be in their own category.

You can then create a list of all expenses that aren’t constant and those that can be adjusted to save some money. These include gas, groceries, entertainment, and individual lifestyles. You could use your bank or credit statements to see where most of your money goes, especially for variable expenses. Most banks and credit card companies itemize monthly expenditures, making it easier for you to easily track essential and non-essential expenses. Going the ‘old school’ way and recording all your daily spending on paper can also help keep you abreast with your expenditure. There are plenty of budgeting apps and tools you can also take advantage of.
 

Step 3: Set Realistic Goals

According to financial experts, you need first make a list of all the financial goals you wish to achieve before creating a budget plan. Once you are sure of your net income and expenses, you can start drafting your short- and long-term goals. Long-term goals take years, while short-term goals can take less than a year. Saving for your child’s education, retirement, or a second home, are examples of long-term goals, while saving up for a new TV, couch, or house renovation are short-term. By setting goals, you can plan ahead and even see where to cut your spending to make it possible. Sometimes you will have financial emergencies that are unforeseeable, take out a small dollar loan and ensure to pay it back to stay on track with your goals.
 

Step 4: Create a Plan

With the fixed and variable expenses list ready, drafting the budget will be much easier. Start by calculating/summing up all the fixed costs to know how much is needed. Take time to determine/predict your variable expenses, as these may change or even be eliminated. Consider breaking the list of variable costs farther between needs and wants. Wants are the things you can do without, while needs are what you need to survive. An excellent example of a need is food, or even gasoline if you drive to work every day. For instance, A streaming service subscription is a want you can choose to cancel or scale down. Making even the most minor adjustments to your wants and eliminating unnecessary ones could save you lots of money in the process.

Step 5: Make A Few Lifestyle Changes

Documenting your expenditure against your income should leave you with some money, most of which is from eliminated expenses. You can save the balance to make your goals a reality. Eliminating some wants can also see you save more money in the process. Consider watching a movie at home instead of going to the cinema. Switching to preparing your meals instead of eating out or using public transport from time to time can free up some of the much-needed money, allowing you to accumulate savings even faster.

If the numbers don’t add up, consider adjusting your fixed expenses. A few sacrifices will have to be made to live within your income without accumulating debt. Moving to a cheaper house, for example, might free up a good chunk of money that can be used to accomplish both short—and long-term goals.