One of the best ways to begin your journey of financial freedom is to create a budget. With the following steps (courtesy of Igor Cornelsen) you will be able to create a budget that will allow you to put your finances in order and get you closer to your goal of financial freedom.
Know your income
This first step is important. By calculating how much money you bring home each month will let you know how much money you have to spend. Your income amount includes the money you receive from your job, alimony, child support, social security, or even hobbies. When you are adding the money that you make from your 9 to 5 make sure to include your net amount and not your gross income.
Add up your expenses
One of the easiest ways to add up your expenses is by saving your receipts. Your grocery, gas, and miscellaneous items receipts will give you an idea about how much money you spend in those areas on a monthly basis. Also, include your monthly bills such as your mortgage, car payment, utilities, etc.
Know your goal
Having a goal set will help you to stay true to your budget at times when you want to splurge. Are you trying to save for retirement, a new car, or maybe a new home? Whatever your goal is, make sure it is understood before you start living by your budget. Also, during this step be sure to create a time frame you would like to review your goal and to reveal your progress.
Once you know what your expenses are for the month, divide them into categories. For example, create a housing category that includes all expenses connected to your home such as utilities, rent, or phone bill.
Once you have categorized all of your expenses, take the time to list the amounts. For example, under your auto category you may list the cost of your car payment, insurance, and gas. After all the amounts have been determined for each category, add them together. The sum will be your monthly budget amount.
Keep track of your budget
There are many apps and software’s available that can help you to keep track of your budget. If you prefer a traditional approach, purchase a ledger book that will allow you to physically track your budget.
The budget you create today is not set in stone. Situations will arise that will cause you to have to make adjustments. Also, make sure to include an emergency fund so just in case an unforeseen expense emerges, so that it will not completely throw you off your budget.