How To Make A Budget Like A Pro
If you have financial aspirations, plans to make a big purchase, or just want to know how to make a budget, you can create a budget like a pro with these steps.
A budget tracks your spending versus your income to determine how long it will take to reach your financial goals. You can also modify your spending behavior or look for higher-paying work based on your budget.
To help you build and balance your budget, Numerico accountants share financial expertise and tips. Read on to learn more about how to make a budget.
Provide Your Income
The first step of creating a budget is to determine your income. People generally budget on a monthly basis, so you can calculate your monthly take-home earnings.
This step is simple if you’re salaried or if your paychecks are the same each pay cycle. You can just add together a typical month’s worth of paychecks for your budget, not including months where you receive an extra paycheck.
If your paychecks vary from week to week, average out a few months of paychecks.
List Your Expenses
Now, you can start calculating your monthly expenditures. Review your recent bank account and credit card statements over the last few months to see where you spend your money. Your spending likely changes significantly from month to month, so you’ll have to average these numbers together to get a workable expense amount.
Designate a spending category for your necessary monthly expenses. Here are some examples of essential spending items:
- Rent / mortgage
- Gasoline or fare for public transport
- Emergency nest egg
For all non-essential purchases, create a separate category, which could include:
- Entertainment (video games, movies, streaming subscriptions)
- New technology
- Traveling expenses
- Eating at restaurants
While you’re learning how to budget, this will help you determine how much income goes toward essentials and how much is left for fun. You can break wants and needs down into more specific spending categories if that’s useful for your budgeting.
Subtract Your Expenses From Your Income
Once you have an average for both income and expenses that feel right to you, subtract expenses from income. Alternatively, you could hire a personal accountant to manage your finances.
Income that exceeds your expenses is called your unused spending power. This money can build towards the financial goal that prompted you to learn how to create a budget.
Keep Records of Your Transactions
To become more aware of your spending habits, start tracking your transactions or hire an accountant to compile reports on your spending for you. This can help you utilize the information your budget provides while also helping you cut back on unnecessary purchases.
Knowing where you spend your money also helps you accurately build your budget for the following month. You can motivate yourself by remembering that any money you aren’t spending is building toward your financial goal.
Make a New Budget Every Month
Once you know how to budget, keep yourself informed about your spending habits from month to month. Track trends in higher or lower spending each month and update your budget when your income changes. Consider the 50/30/20 budgeting rule, which advises reserving 50% of your budget for essential purchases, 30% for non-essential purchases, and 20% for bolstering your savings and paying off any debts.
This can help you regulate your spending and quickly build your nest egg. An accountant would also be an asset to monthly budgeting since they could keep an accurate account of your spending versus your income and provide that information to you. They may also help you make big financial decisions and then help you adjust your budget accordingly.
Numerico | Tax Expert Serving Southeast Michigan
To determine your spending power after taxes and make informed financial choices, turn to Numerico. Our team of professional accountants offers personal accounting and tax services to individuals in the Livonia, Plymouth, Canton, Farmington Hills, Ann Arbor, Westland, and the surrounding Michigan communities.
If you’re looking for expert advice on how to make a budget and complete your taxes, Numerico’s financial expertise leaves no room for error. We can help you:
- Reach your financial goals
- Understand your own spending
- Build your financial future