The first step towards the right money management is to know your expenses and income better. Creating a personal budget doesn’t require much, especially today when you can see all your spending with just a click on your credit card/bank website.
For the advanced people of you, who want a full grasp on their money, use this FREE beautifully Excel spreadsheet which does all the calculations for you:
Or you can try it online here:
Now, to begin with, there are a few steps you should notice:
# Know your NET income
Firstly, you must identify the real money you have coming in. Many of us overestimate that amount, confusing our gross income for our net income. Your income after taxes, Social Security, 401(k) and others, is your take-home pay, also your net income. We will use that number in our budget spreadsheet.
# Set your goals
If you want to change your life, you can’t keep doing what you currently do. The change begins when you realize that.
After that, make a conscious, informed decision about your personal and financial goals you wish to accomplish in the short and long term. Short term goals should take no longer than a year to achieve. Identifying and have a bright, precise vision of these goals will help you set your priorities and keep them in the long run.
# Track Your Spending
By categorizing your spending you’ll be able to know where you can make adjustments. Tracking will help you identify what you are spending the most money on and where it might be easiest to cut.
Starting with your fixed expenses – those regular monthly bills such as rent or mortgage you can’t avoid. Knowing the exact amount you spend on these will be helpful along the way.
Next, list your variable expenses – these are subject to changes from month to month. These expenses include groceries, entertainment and more. Here we should be doing most of our cutbacks. Often you can see these expenses categorized already in your credit card/bank websites. You can use apps to record these expenses on a daily basis if you find it helpful.
# Use that Information
After you come to know your income, fixed expenses, and variable expenses and have a better understanding of where you’re standing financially- you should start using this knowledge. Know your habits and know where you can cut back so you can grow the amount you save each month and get closer to achieve your goals.
Does it really necessary to eat outside so much? Can you see a movie at home instead of watching it outside?
Adjust how much you’re spending on “wants”. now with your budget spreadsheet, you can check how much it frees up. If that’s not enough, evaluate your spending on “needs”. You’ll be amazed to know that not necessarily all your “needs” are actually needed.
Keep in mind that small savings can add up to a lot of money, so don’t overlook the little cutbacks. One minor adjustment can make a huge difference in the long run, because of the miracle of compounding.
# Make it a Habit
Do it on a regular basis. Stay on track. Keep checking and adjusting your budget following the steps above, and you’ll see the change unfolding.
- Use the FREE spreadsheet above to manage your monthly budget right.
- Know your net income. Don’t confuse it with your gross income.
- Set your goals and break them into short- time periods, so you’ll know precisely the amount you should reach each period.
- Do it continuously. Make it a habit to sit once a month and track your spending. Try making it in the middle of the month, so you’ll have a grasp where you stand.
- Read the above green and bold paragraph, and remember it.