Budgeting 101

Making a budget can seem simple: You figure out your monthly income and portion it out. But when you sit down to do that, you can get overwhelmed. What bills get priority? How much should you set aside for various expenses? How much should you save?

Things get complicated, but it’s worth pushing through the complexities. As ThePennyHoarder.com senior editor Nicole Dow wrote recently, “Creating a budget — and sticking to it — could give you the financial freedom you crave. And it doesn’t have to be a grueling process.”

Following are a few tips for keeping your finances in line without sending yourself over the edge. A template like this one from MoneyFit or this one from Kiplinger can help you get going.

Start with income. How much do you make each month? This should be your takehome
pay, after taxes and benefit costs are taken out.

Tally up fixed expenses. List things that are consistent every month, like rent or mortgage, car payments, insurance and so on.

Estimate other regular expenses. This is where a little more work is involved. Look over your expenses for the last few months and estimate how much you routinely spend on non-fixed expenses like gas, groceries, utilities, and other monthly costs.

Go for the 50/30/20 rule. A lot of experts suggest that your spending should break down roughly into three parts: Your “needs” – housing, car payments, utilities, groceries and so forth – should be about 50% of your expenses. Another 20% should go to savings accounts, education costs and paying off debts. That leaves 30% for wants – things like streaming services, shopping, vacations, eating out and so forth. Add up your costs in three categories to fit these guidelines.

Analyze. Take a look at your spending with the 50/30/20 rule in mind. What adjustments do you need to make?

Make a plan. Write out a plan to cover your monthly spending, putting your priorities on your needs and savings. If you see ways to trim costs from “needs,” then do so, but if your spending is out of whack, you’ll likely find that the problem is with your “wants.”

Track and adjust. Take a look at your plan every month and assess how you’re doing. Make adjustments as necessary to stay on track.

Tap into tech. Doing all of this can be easier if you take advantage of the many budgeting apps, software and websites out there. Do a web search for “household budget” and you’ll find a lot of options, both free and for a cost.

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