Are you at the point where you’re in the red every month, but you don’t know where you can cut back?
Are you not sure how to organize your finances or create a budget plan in the first place?
Getting your finances organized can be overwhelming. But, we’re here to help you.
We’ll show you how you can break down your budget and allocate your funds appropriately.
Then, we’ll hook you up with our monthly budget template so you can stay on top of your finances with no problem.
We’re going to cover:
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A budget is an estimate of your income and expenses for a specific time period.
By creating a budget, you’ll know in advance if you have enough money to cover all of your expenses. And if you find that you don’t have enough money to cover all of them, you’ll be able to prioritize your spending to focus on the things that are most important.
Planning ahead of time will help you manage your money and balance your expenses with your income. If you don’t do this, and end up spending more than you make, you can find yourself in a really difficult position.
A lot of people spend more than they earn. They dig a little hole, that just gets a little bit deeper everyday. Eventually, the debt adds up and becomes overwhelming. Unfortunately, by the time you get to this point, you already feel like you’ve lost control.
When you set out to create your monthly budget, you should distribute your income across every spending category, and end up with a $0 balance. By doing this, you’re allocating your money and making sure that all of it has a purpose.
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A budget is extremely important.
Why?
Do you want to:
If you plan on doing any of these, you are going to need a budget.
By creating a plan and determining where every cent of your money will go, you’ll be able to maximize your savings or payoff debt in no time.
In order to begin creating a budget, you’ll have to allocate a percentage of your income towards each category of expenses. Once you have your expenses organized, it’s just a matter of determining how much you can set aside for each.
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Your expenses should be divided into the following categories and within each category we will illustrate what is considered:
Housing
Food & Grocery / Cleaning & Household Products
Auto & Transportation
Miscellaneous
Medical
Personal & Discretionary
Savings
Debt Payments
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Each expense should have a percentage assigned to it. This way you can make sure that you have enough for everything else.
So the recommended percentages are:
You need to be able to organize your expenses and make adjustments if needed. In this section we are going to explore all of the different categories and give you ideas on where to cut back if you need to.
So let’s start with housing:
It its important that your housing does not exceed this if you want to be able to live comfortably and have everything you need. Yes, we all sometimes wish for a bigger house or a more modern amenities, but don’t forget the costs associated with those luxuries.
In order to accomplish your financial goals, stick within the 35% budget guideline.
So how does that break down?
Let’s say that you have a monthly gross income of $3,200. If you were to set aside 35% of your income for housing, that equates to $1,120 a month.
Are you spending more than 35% on housing?
The reality is that having a roof over your head is a high priority. So, if you have to exceed the 35% budget guideline here, you won’t really have a choice. But, be sure to adjust the percentage of another expense to compensate for this one.
Together, these costs should add up to be around 10 – 20% of your monthly income. Keeping your family healthy and in a clean home is definitely a necessity.
If you can, try to actually spend 18% here, and keep that other 2% for unexpected situations. Maybe you’re in the middle of a busy day of errands and you stop at CVS to pick up your prescriptions. But, the candy aisle catches your eye and you can’t resist purchasing a snack.
We often don’t think about these little indulgences, but those little things here and there can add up very quickly and derail our budget plans. So, by keeping that extra reserve, you won’t have to worry about going over budget for a small treat.
So how does that break down?
Let’s say that you have a monthly gross income of $3,200. If you were to set aside 10-20% of this, it’ll be $320 – $640 a month.
Are you spending more than 10-20% on Food?
Do your best to stay within this suggested range. If you exceed the limit here, you’ll have to cut back somewhere else.
Auto & transportation should be around 15 – 20% of your monthly income. However, there’s a lot to take into account here, and these costs aren’t always fixed.
While you’re not paying for an oil change, tolls, registration, maintenance & repairs every single month, you do need to be prepared for when these costs do come up.
Example: It’s February and you’re finalizing your budget for the next month when you receive documentation that your registration is due in March. Based on your usage, you’ll also need an oil change in April.
Expenses like this easily throw us off track. But, you’re taking the time to plan ahead, and it will pay off.
All you have to do is make some adjustments to your budget plan for the next 2 months. If you know that you’ll need to put upwards of 20% of your budget towards auto costs, be sure to cut back by 5% somewhere else.
So how does that break down?
Let’s say that you have a monthly gross income of $3,200. If you were to set aside 10-20% to your auto & transportation costs, it’ll be $320 – $640 a month.
Are you spending more than 10-20% on Auto & Transportation?
By creating a monthly budget template, you’ll be able to take care of these extra costs without any issues.
So how does that break down?
Let’s say that you have a monthly gross income of $3,200. If you were to set aside 8-10% of this, it’ll be $256 – $320 a month.
Are you spending more than 10-20% on Miscellaneous?
If you can’t find the additional money needed by cutting back here, look at some of your personal & discretionary expenses. Can you do without some of those to make the room necessary for child care?
Medical should comprise 3% of your income. Keep in mind that you most likely won’t be getting sick every month. The months when you’re healthy, you’ll only be paying your premium. So, any cash that you have left after that should be put into savings.
Medical costs can be unpredictable. You never know when you’re going to get sick or into an accident that could be a big financial hit.
So how does that break down?
Let’s say that you have a monthly gross income of $3,200. If you were to set aside 3% for medical, it’ll be $96 – $160 a month.
Are you spending more than 3% on Medical?
If you have any unused money at the end of the month, make sure to save it. There’s nothing better than having that money there for when you actually really need it.
This should be around 5 to 10% of your income. This category of expenses is more for our wants, and not about what we really need.
Yes, we all love to have some extra cash to go out with friends, to the movies, a basketball game, or even a concert once in a while.
But, you shouldn’t be pulling money from other areas to spend more here. And you definitely shouldn’t be putting any extraneous charges on your card for these purchases either.
So how does that break down?
Let’s say that you have a monthly gross income of $3,200. If you were to set aside 5-10% for personal & discretionary expenses, it’ll be $160 – $320 a month.
Are you spending more than 5-10% on Personal & Discretionary?
As human beings we want to have fun, enjoy life, and spend quality time with others. And there is nothing wrong with that, if we organize ourselves and stay on track.
Savings should be around 10 to 15% of your income, and are crucial for a successful future. If you want to retire one day, you’ll need significant savings.
The more you save, the less stressed you’ll be.
Why? Because if something comes up, you’ll be able to handle it.
Let’s say you want to purchase your first home. With enough savings, you’ll be able to afford a substantial down payment that will lower your monthly costs. Or say a family member is in need of some extra cash, you’ll be able to help them out without it affecting your monthly budget.
So how does that break down?
Let’s say that you have a monthly gross income of $3,200. If you were to set aside 10-15% for savings, it’ll be $320 – $480 a month.
When it comes to savings, try to be closer to that 15% mark. You must also decide how you’d like to split your savings between your standard account and your retirement plan.
Debt payments should be around 5 to 15% of your income.
When you use your credit card for a purchase, you’re essentially buying it for a higher price. Why? Because if you don’t pay your balance in full, you’ll end up paying interest on it.
You need to ask yourself how long i’ll take you to pay something back when you’re thinking about swiping your card.
So how does that break down?
Let’s say that you have a monthly gross income of $3,200. If you were to set aside 5-15% for debt payments, it’ll be $160 – $480 a month.
The more you can put towards your debt payments and the less you use your credit card, the better it is for you in the long run.
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Let’s say that you make $20 a hour, and work the standard 40 hours a week.
That means you have a monthly gross income of $3,200. Once that’s broken down, you’re bringing home about $2,643 a month.
Now, let’s break that down and see where you’re spending:
Total: $2,871
Your expenses were $2,871 last month, but you only took home $2,643.
That means you’re short $228.
By creating a budget, you’ll be able to make the proper adjustments to ensure you don’t go over.
If you’re short $228, you’ll need to think about where you can cut back.
Adjustments could be made in:
But, you’ve made those changes and it’s not sufficient to cover your expenses.
Looking for more savings? Consider:
It’s easy for money to fly out of the window when you don’t carefully track where it’s going. By creating a monthly budget, you’ll know exactly what expenses your income is dedicated to.
This way, you’ll be able to monitor your progress and know ahead of time if you need to make any adjustments.
What’s the hardest part about staying within your budget? Let us know in the comments!
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