Tips for Determining How Much You Can Spend Every Month
In our modern age when most transactions are done digitally, it can be hard to tell whether or not you can afford a purchase. It’s even harder when your income fluctuates, such as working for commissions or tips. Whether you wish to control your spending or want to see where you can save money, here are a few tips for creating your own personal budget.
Review Your Income and Spending Habits
First, you should review your income and spending habits. Collect recent paystubs and calculate your net income for the past few months. If your income fluctuates, assume that the lowest monthly estimate is your average income. Write down this number for later.
Then, you need to list each of your expenses. Begin with essentials such as rent, food, utilities, insurance, medications, transportation, etc. If you have essentials that fluctuate in price, such as electricity, assume that you will pay the highest estimate.
Once you have gathered all these bills, add them up and subtract that number from your net income. The remaining number is the amount you can budget for variable non-essential purchases, such as eating out, going to the movies, buying merchandise, etc.
Contribute to Savings, Make Adjustments and Track Your Cash Flow
It’s important to remember that your expenses should never exceed your income. At the same time, you shouldn’t be spending every dollar you make each month either. If you don’t already, you should invest some of these funds to yourself, such as a savings account. This money will help you get out of rough patches of your expenses suddenly rise due to unexpected situations.
If you do find yourself spending most of your earnings, it’s time to make adjustments. The 50/30/20 budget rule is a very helpful and popular guideline to follow. With this rule, you should plan to allocate 50% of your earnings to essentials, 30% to non-essential purchases, and 20% towards savings or paying off debt.
Finally, you should track your cash flow going forward. Pay attention to your expenses each month and adjust your budget as needed. Afterall, while making a budget is important for maintaining your finances, it won’t do you any good if you don’t follow it.
Looking for more ways to manage and save money? Explore the U.S. Auto Sales blog for more informative posts like this one!