How to Make a Reasonable Budget in 2020
Every personal finance expert swears by budgeting. But how come it does not work for everyone? The simple explanation is this: Some people create their budget more like a wish list instead of writing it using reality-based guidelines.
When making your budget, think about how you need to spend to meet your financial goals, not how you would wish or like to spend your money in an ideal world. Follow the tips below to create a reasonable budget and get started today.
1. Test a few systems and go with one you are comfortable using.
Not all budget systems are user-friendly. This will always depend on the person using it, so naturally, what works varies from one individual to the next. If you like tracking everything yourself, use a spreadsheet with formulas to organize and update your numbers. If you want to monitor your spending at a macro level, you can use apps with budget categories to help you.
2. Know your current income.
Calculate the net income. This is the amount of money you have after paying essentials like taxes and retirement contributions. This will give you a good base for your budget.
3. Compute your expenses.
Focus on the essentials first. How much are you paying for necessities like utilities, rent or mortgage, car payments, food, or medical costs? The fixed expenses are easy to calculate but variable spending, like food and groceries, will be more challenging to compute. Give your best estimate to come up with a suitable budget.
4. Make room for savings.
You should have three major savings goals: emergency fund, retirement fund, and personal goals. It is up to you how much to put it in each category. The most important thing is that you save something every month. Do not put savings in the back burner. You will regret it in the future.
5. Adjust as necessary.
Circumstances change, and so will your budget. In fact, it can move from month to month. This is okay. Make an appointment with yourself every few months to sit down with your budget and make sure it is working for your current goals and realities. Being realistic is the first step to making a successful budget.