Are you lost with your finances? Have you been spiraling downhill without any control of your money? Do you want to learn where to start your financial journey?
Look no further! This blog is for you!
Here is how you start a budget:
1. Evaluate how much you take home (after taxes)
2. Learn how much you spend each month
3. What can you cut back on?
4. Where can you make more money?
Now, let’s take a closer look at each.
Evaluate how much you take home (after taxes):
In order to know how much you can spend you must first know how much money you have. There are two types of income a) gross income and b) net income:
A) Gross income is the money that your job pays to you.
B) Net income or take-home pay is the money that you are able to spend after the taxes are taken out.
Sometimes it is tough to look at your gross income only to see what your net income is. The taxes are taken out automatically and the net income will be deposited into your account (if you have direct deposit set up).
Getting back on track, you will need to focus on your net income since that is what you have available to spend.
In most cases, your job will pay you more than once a month so you will need to look at multiple pay stubs.
I like to look at the last 12 months of my pay stubs and average out my monthly income. I do this by adding up all my gross income and dividing by 12 to get my monthly gross income. This gives me a good idea of what I am making each month.
Learn how much you spend each month
Trying to figure out how much you spend each month is a little more difficult compared to seeing how much your gross income is. You will have to find out how much money you spend on a monthly basis.
One way to do this is looking through your previous bank statements. If you use a budgeting tool like MINT then this step in the process will be easier. If you do not use a budgeting tool then some banks will tell you how much your income is and how much your expenses are. You will have to do some research on your account to see if your bank offers this type of information.
What can you cut back on?
Once you have an understanding of what is coming in and what is going out you can take a closer look at needs and wants.
When you look at what you spend on a monthly basis it comes down to two things.
1) Needs: housing, car, insurance, food, clothing, etc.
2) Wants: coffee, dining out, vacations, gadgets, subscriptions, etc.
Most people will have to have a heart to heart with themselves and really look at their expenses and ask themselves, “Do I really need this?”. If the answer is anything other than a definite YES, then consider it a want.
Now that you know what you NEED to spend your money on you will have a better understanding of what you have left to work with.
Anything left over that is not spent on your NEEDs list you can spend as you like.
I would categorize whatever is left and split up the money. For example, put some money into savings, investing, eating out or coffee.
Only spend what you budget for.
This is easier said than done, I get it.
If you are really determined you can follow the envelope strategy by Dave Ramsey .
Where can you make more money?
If you are like me then you will want to make more money than what you are currently making.
Perhaps, after you have followed these steps, you find that you spend more than you make. Either way you will want to make more money, so it begs the questions: How will I make more money?
You will want to create an extra stream of income. This can be a side hustle, selling your old/ unused stuff or working extra hours at work.
The point is that you are generating more income to either pay your bills or invest/save where you need to.
The best side hustles involve a proven and sustainable product or service. The income you generate from a side hustle is only as good as the product or service of the side hustle. Make sure you do your research before jumping into a random side hustle.
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