Undoubtedly, creating a budget helps you spend less and save more. Right from the first paycheck you get, you need to take control of your money and learn the art of saving. Why? Because it helps you get financially secure and ensures you survive financial emergencies. According to a study, people who save money experience less anxiety when faced with hard economic times. This indicates that creating a budget is one of the keys to financial success and security. While creating a budget is simple, sticking to it can be difficult. Studies reveal that nearly 85% of people new to budgeting fail to stick with their first budget because they have stepped into the real world with a lack of money management skills.
Learning the Art of Creating Your First Budget!
You don’t have to feel bad if you are not good at making a household budget. This indicates that creating your first budget is an intimidating task as you probably have no idea where to start. For ideal household budgeting, a clear-cut picture of finances and cash flow need to be sketched to know where your money is coming from and where your money is going.
Creating Your First Budget: Start from the Basics
Using a proper accounting and bookkeeping system makes it easy to track all your household transactions. Both income and expenses can be tracked using accounting and bookkeeping software and identifying whether the income and expenses are fixed or variable. Fixed income is that which is the same amount each time received. Variable income is that which has amounts or dates that change. The same goes for fixed or variable expenses. Determining the type of income or expense is essential when entering it into bookkeeping software to streamline the budget process.
Digging into the Details
Before creating your first budget, it is ideal to make a list of essential or non-essential items that are needed to be bought or not. A load of non-essential items can be shifted to the next month if the budget while doing grocery exceed your monthly limit. Moreover, you need to check the status of your finances after deducting taxes from your monthly paycheck(s)—the amount left after all the deductions need to be allocated smartly into three major accounts.
First, savings. Second, retirement or 401k. Thirdly, the account from where you will manage your expenses for the month. This indicates that money needs to be transferred to all three accounts with 20% to a savings account, 5% contribution to your retirement or 401k account and the rest 75% to your current account where you will manage your expenses.
Spend Less, Save More—the Mantra of Success
No matter whether you are trying to make a budget for the first time or have become a professional in this field, you need to know how much money you can afford to spend for the month. Once you have a clear picture of your finances, you can come up with a workable first budget. The motivation to save money develops right from the beginning, and those who realize its significance can expect to have healthy finances.
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