How to Build a Monthly Budget
Learning how to manage your money is important. Whether you are fresh-out of college or have been working for decades, knowing how to create and track against a budget is essential to staying on top of your finances. After all, a successful budget goes beyond just tracking your mortgage payment and grocery bill.
To plan for the future and steer clear of financial trouble, use your budget to keep track of your income, expenses and savings — and everything in between. With a little work, a sound budget will help you pay your bills on time, while also saving for a large purchase or your dream vacation.
Establish your Income and Expenses
The first step in creating a budget is figuring out your household income. This will help guide your expenses and give you a starting point. Don't forget to add in any additional money flowing in like one-off jobs, cash gifts, etc.
Once you have your total income finalized, estimate your tax deduction, including state income tax, Medicare and Social Security. You can find several guides online to help determine which tax bracket you are. And although Uncle Sam may return a portion of this back to you, it is always best to think of taxes as a sunk cost.
Next, begin calculating your recurring monthly payments — these are the bills that you have more limited control over. This includes housing, water and electricity, gas and any loan payments. Once you have that number, you can start with the costs that vary each month... things like how much you spend on dining out, groceries or entertainment. Going through your credit card statement and categorizing these costs to see how much you spend on them in a month is a great way to put your spending in perspective and help set goals for the future.
Worried about an unplanned expense or cost you're not used to? Mattress Firm's tip: add an extra 10% to your budget, just in case of an emergency.
Diminish Debt and Start Saving
A healthy budget should have some overage. If you are making more than you're spending, you can use your leftover funds to either pay off debt or set these funds aside in your savings. Either way, feel confident knowing that you're using your money to support yourself responsibly.
Most financial planners recommend setting aside around 20% of your income on a regular basis to add to a savings account. If you're spending more than your income, look at cutting some of your varied expenses first. If you can't cut them any further, a more drastic step is to look into how you can decrease your recurring monthly payments. If your fixed monthly payments feel like a ripoff, Mattress Firms recommends trading in your car for something that better fits your budget, or changing your cable/internet plan. Making small changes will help you avoid going any further into debt.
Tracking your expenses can seem overwhelming — but the best way to do it is to start today. Learning how to save doesn't have to suck — check out Mattress Firm's handy downloadable worksheet for a good template to get you going!