How do you create and keep a budget?
Creating a budget isn't difficult. You just need to spend some time organizing and planning. Once it is set-up, budgeting is useful and easy to maintain.
5 steps to set up your budget
Set your goals.
Start by asking yourself three key questions:
- What's important to me? (Children's education, shopping, dining, travel, etc.)
- What do I need? (Food, transport, household essentials, etc.)
- What do I want? (A new laptop, dining at a luxury restaurant, new clothes, etc.)
Once you determine your answers, you can begin to budget accordingly. Group your financial goals into three areas:
Short-term goals: Goals you want to achieve in the next 1 to 2 years.
Mid-term goals: Goals you want to achieve in the next 2 to 5 years.
Long-term goals: Goals that will take more than 5 years to achieve.
Pull together the records of all of your income and expenses. This can include paychecks, checkbooks, credit cards and borrowing statements, financial statements from banks and more. Be thorough and honest when estimating any expenses.
Find out where you stand.
Use the information above to figure out your current spending habits, and organize your information into three sections:
What you earn
Add your income from various sources, including your take-home pay after taxes, commissions, bonuses, dividends, etc.
For example, if your monthly salary is P25,000 and your tax is 20%, your take-home pay will be P20,000.
What you spend
Add your fixed and variable expenses. Fixed expenses are those that don't change every month and usually cannot be eliminated, such as rent, mortgage, insurance, borrowing payments, etc. Variable expenses are those that change and could be reduced like groceries and gas or eliminate things like online streaming and cable subscriptions.
Your bottom line
Subtract your total expenses from your total income. The amount left is your "discretionary income", which you can use for emergencies and meeting budget goals.
Check your bottom line.
Your bottom line is the difference between what you earn and what you spend. It's a clear way to know if you're spending too much.
Save For Later
Keep track of expenses.
After your first budget calculation, start keeping a monthly expense record. It's important to learn everything you can about how your spending habits, even if your bottom line is positive.