There's no doubt about it – the past couple of years have been trying for a number of reasons, the pandemic and the economy being top of the list. After more than a year of staying at home, not traveling, and few social activities, many Americans are going back to life as normal (or as normal as it can be).
But as tempting as it might be to play catch up on all the things you missed, spending frivolously could be a recipe for disaster. Instead, a good plan of action is to reassess your spending and develop a budget that focuses on making sure you're spending money wisely on the things that matter the most.
To help you figure out the budget that works best for your household, take a look at our simple three-step plan to calculate, track, and create.
Budgets don’t work if you’re fuzzy about income and expenses. So don’t assume you know your income or guess at a figure. The best way to calculate your income is to check your paystubs for at least the last two pay periods to learn how much you’re actually receiving after all taxes and deductions.
If you work in a job that can have big income swings (for example as a restaurant server or a retail associate working on commission), track your income for a couple of months and calculate an average.
Don't forget to include any side gigs you may have or other sources of income – it all counts!
Now that you know how much money you bring in every month, it's time to allot for how much of that goes out for bills, entertainment, and other expenditures.
One way to track your spending is to keep a list of everything you spend money on for a month. You can use your checkbook register, an Excel spreadsheet, or another tracking system that works for you. Nerdwallet has some free online tools that can help you track your expenses if you prefer to do it online. Or you can track your expenses easily with an app like Mint or Simplifi.
While it might be tempting to guess at your expenses, we don't recommend it. Not only is keeping track of your budget a great way to keep more of your money in your pocket, it can also be an eye-opening experience. We bet you'd be surprised at how many seemingly insignificant purchases you make every month that can really add up!
Once you know your income and your spending, you're ready to create a budget. One great way to make your budget easy to use is to create categories for spending. For example, common categories include food, housing, and transportation. But you could also add categories to your budget for debt payments, entertainment, charitable giving, savings, and retirement.
The same tracking tools listed above can be used to help you budget. It's great to have everything in one place as well.
Now it's time to put your budget into practice. It only works if you're honest with yourself about your spending and try to stick to the money you've allotted in each spending category.
While a budget is intended to work in good times and bad, that doesn't mean you can't make adjustments. As you work your way through your budget in the coming months, don’t forget to check your numbers and revise your plan if you have changes in income or expenses. And if you need help figuring out how to save more money every month, check out our article on 10 helpful tips for saving.
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