Five Steps To Help Create Your First Budget
Consider Budget Methods
There are many ways to divide a budget but the 50-30-20 method is the most used. This budget type assumes you spend 50 percent of your monthly income on necessities, 30 percent on discretionary items and 20 percent for savings and debts.
Determine Monthly Income
Calculate your take-home pay after taxes and other deductions. Remember to add passive or irregular income, such as bonuses, dividends, etc.
Calculate Monthly Expenses
Break your expenses out into two categories: necessary and discretionary expenses. Bills that must be paid each month are necessary expenses. While eating out, vacations and entertainment are considered discretionary expenses.
Establish Savings Priorities
Here is where you decide which goals are most valuable to you. You should have short-, mid- and long-term priorities and consider dividing each goal into separate accounts.
Create a Savings Plan
Determine how much to allocate toward your savings goals each month. Set dollar amounts and time frames, keep track of your progress and revisit these to determine whether you need to drop a goal or downscale.