If you’ve never made a monthly budget before, the task can seem daunting. But it’s also worth it; in fact, just about all personal finance experts draw a straight line between creating and sticking to a budget and building long-term financial security. Fortunately, creating a personal budget does not have to be an intimidating process, especially when you follow these seven basic steps, starting with:
Calculate how much you are currently worth
To get started on your budget, the first thing you need to know is how much money you currently have. To get this figure, add up your savings, checking, and retirement accounts, along with the value of any property you may own.
Get a clear picture of how much money you make a month
Many people receive an annual salary that gets divided bi-weekly or monthly into paychecks. But if you’re working hourly, or working off commissions, that salary can fluctuate. Regardless of how you are paid, the best way to get a clear picture of how much money you currently make is to average out your last 6 to 9 months of pay.
Account for all your major debts
Car bills, credit card debt, student loans, possible mortgage payments – these are the typical larger-sized debts that face most first-time budget makers. It’s imperative that you get a clear grasp of this figure so you know how much money you must pay out of your budget each and every month.
Determine your smaller monthly expenses
Now it’s time to calculate all the smaller dollar figures that must be accounted for each and every month. These expenses include groceries, utility bills, cable, health club memberships, entertainment expenses, and car and medical insurance, to name just a few.
Put steps 1-4 together and establish your financial bottom line
Here is where you put all your information together to determine your financial bottom line. Are you earning more than you are spending, or climbing deeper and deeper into debt each month? Most first-time budget makers either find themselves with just a little money left over or recognize that they may be overextending themselves. Either way, only after you look at your bottom line can you begin to make plans that will eventually place yourself on solid financial footing.
Make those painful – but essential – cuts
This is easily the hardest step of all: determining those costs that are essential to you, and those costs that are not – and eliminating the ones that are not essential. Are there things you spend money on each and every month that you enjoy, but can also live without? Alternatively, is there a monthly service, expense, or habit you are paying for that can be substituted with a less expensive option? This step is absolutely key to creating the self-discipline and self-awareness you will need to build towards a secure future.
Don’t forget to save for retirement
Last but certainly not least is a step that is understandably ignored by most first-time budget makers: saving for their retirement. Of course it is extremely difficult to find that extra money to put away each and every month; at the same time, however, there is also no more surefire way to build wealth then to begin saving one’s money through a 401(k), IRA, or other savings vehicle, from as young an age as possible. While many financial experts recommend you try to set aside anywhere from 5 to 10% of your income, the bottom line is that any money you save now can pay off tremendously down the road.
As the nationwide leader in purchasing structured settlement and annuity payments for cash, J.G. Wentworth has had thousands of conversations with folks around the country looking for financial help. We hope these seven basic steps towards creating a budget will help both new and experienced budget makers increase their financial security. We also encourage you to call our company anytime at 877-227-4713 to discuss your current financial situation.