What to Think About When Building A Budget

A budget is a great tool that you can use to help you manage your money and reach your financial goals. But building a budget can be intimidating, especially if you're not sure where to start. Below are some things to think about to help you get started: 

Overall income

The first step in building a budget is to figure out your overall income for the year. Of course, a salary may be the largest part of your income. You can also add any side hustles or spousal support or child support, if you’re receiving it. Include all your income sources–even if they’re infrequent or if they change from month to month. Things such as a one-time inheritance, a death benefit from a whole life insurance policy, monthly dividends from an investment, or interest from a savings account can all be thought of as income. Once you have an idea of your yearly income, divide that number by 12 to break it down roughly into monthly income.

Fixed expenses and recurring payments

Next, think about all your monthly expenses, and write them down. Include costs that are the same every month such as mortgage or rent, car payments, any home, auto or life insurance premiums, or taxes. Then estimate the expenses that could change each month such as groceries, utilities, clothing, and entertainment.

man counting banknotes

Financial goals

A budget isn’t only about paying bills, though. It’s also about planning for the future. Think about your financial goals and how much you might need to save each month in order to achieve them. This could involve things such as building an emergency reserve, saving for a down payment on a house, contributing to a retirement fund, getting a permanent life insurance policy, and paying off any debt. Set aside money toward these goals in your budget.

Making space for things you want

It’s important to budget for things that you want, too. Maybe you’ve got your eye on the latest cell phone or a tropical vacation or maybe you want to see your favorite band perform live in concert. You may want to put aside a certain amount of money each month for special things, too, while making sure to balance the fun stuff with your other financial priorities. 

Automating payments and savings

Think about setting up automatic bill payments and savings transfers to make it easier to stick to your budget. This can help ensure that you are paying bills on time and saving each month, even if you forget or are busy.

Revisiting your budget when needed

Since income and expenses can shift, try to review your budget from time to time to make sure that it still matches with your financial situation. This might require you to adjust your spending or saving routine. Make a habit of reviewing your financial goals periodically as well. Once your goals are achieved, or if they change, you can adjust your budget as needed.

Building a budget is a big step toward financial stability. By considering your income, expenses, financial goals, and other factors, you can create a budget that works best for you. 

Source: iQuanti