Monthly budgets. They can help you have a much better financial plan and help you succeed in the long-term.
Unfortunately, not everybody is good at saving money. This is such a big problem in the United States that 56% of people cannot cover an emergency that costs $1,000 or more.
If you are someone that struggles to save money or someone that struggles to keep up with their bills, you could be looking for another solution.
So, how do you come up with a monthly budget? What are the benefits of creating monthly budgets?
This is your guide.
Determine Your Net Income
The first thing that you need to do is determine your net income. You need to know what this number is because your entire budget for a month or a year is going to revolve around this.
Some people make the mistake of forming a budget around their gross income. Well, this is wrong because they are forgetting that Uncle Sam is likely going to take at least 20% of their annual income by the end of the year.
In other words, if you are planning a budget where you have $3,000 per month to work with but you only have $2,400 per month in reality, you are going to run into problems. So, make sure that this number is accurate.
This number comes from the income you have from your jobs and any benefits that you receive such as Social Security or disability. Then, there are other payments you may receive such as alimony or child support.
Nevertheless, figure out how much money you bring home every month and then go from there.
Prioritize Your Bills
Next, you need to figure out what bills have to be paid and which things you can afford to cut if you are stretching your current monthly budget.
One of the first things that you need to do is make sure that you have a roof over your head. Whether you are renting or have a monthly mortgage, this number should not be more than 30% of your gross income.
That percentage is for a few reasons. The first reason is that you are going to need to take some money out of that for taxes.
The second reason is that you have other bills to pay besides your rent. There are things such as food, water, clothes, cell phones, car payments, utilities, and more. We will get to those later, but right now, just know that you can’t live comfortably if all of your money is going to rent or mortgage payments.
An example of this is when you have a gross income of $3,000 per month. In this situation, it is best to make sure that your rent or mortgage payments do not exceed $900 per month.
However, some people may be willing to chance to pay a slightly higher rent than this. The problem is if you stretch it out to the point that you are paying $1,500 per month in rent, you are not going to have money for much else without going into debt.
So, considering how much of your monthly income goes towards the roof over your head, make sure you know how much money you need and how much money you can afford to pay for your biggest bills.
Know What You Can Cut
Along with prioritizing your bills, you also need to know what you can afford to cut if you need to meet these bills. This is especially the case for those who have savings goals and those who are trying to stretch a budget.
An example can be someone that has a decent car. You could be paying $500 per month for the next five years for that car. If you sold it today, you may be able to get $25,000 for it.
If you have no savings and you can use that extra $500 per month for other bills and items, you should absolutely consider selling that car and downgrading to an older model.
Another example can be what people spend on food. While groceries are essential, ordering out is not.
Even ordering food from fast food restaurants can add up. If you spend $30 on food eating out at least five times a week, that is $600 per month out the window. Considering that you can likely get groceries for all of those meals for about $200 per month, it may be time to stay in for meals if you are on a budget.
Getting More Organized
The main benefit of coming up with a monthly budget is that it helps you get more organized. You can know exactly where your money is going, know exactly what you have to work towards, and know what you have to do to avoid bigger problems.
One area this can save you is avoiding debt. If you pay all of your credit card bills on time and budget carefully to make sure that you do not need any personal loans, you are saving yourself future costs such as interest payments on these loans and other missed payments.
Learn More About Monthly Budgets
These are some of the biggest things that you need to know about monthly budgets. When it comes to making a monthly budget, you need to know how much money you have to work with, what the most important bills to keep up with are, and what you can afford to cut out of your life.
Then, you will become a much more organized person and have a plan of attack on what we call life.
Do you need help with money management? Schedule a consultation with us today to learn what we can do for you.
