At some point, everyone must join the adult world. That usually means getting a job, moving out on your own, getting some credit cards, and so forth. Not everyone does all these things, but most people do.
Independence means you have responsibilities. That’s not necessarily a bad thing. Learning responsibility and self-reliance can help you develop as a person.
With financial matters, though, some people remain woefully inept. The average American carries over $90K in debt, which indicates how many individuals don’t do well with their finances.
Creating a budget can be a lifesaver if you have debt right now and you’re piling up more daily. We’ll talk about budget creation in the following article. If you don’t have this skill yet, it’s high time you mastered it.
What is a Budget?
A budget, in the business world, means your operating expenses and how much money you bring in. You can regard your personal budget the same way.
Some money comes in. That’s usually cash you get through work. You might also get a little on your birthday from relatives, or occasionally you might see other windfalls. Often, though, you can predict how much money comes in each week or month. That’s valuable information.
Some money always goes out as well. That cash goes toward rent or mortgage payments. It usually goes toward your food budget, your utility bills, your car payments, and similar expenses.
You can usually predict how much money you spend each week or month as well. When you can identify how much goes out and comes in, barring anything unexpected occurring, you can create a budget.
If you look online, you will find innumerable budgeting tools. Some of them cost money, but you may discover free ones as well.
The more complex ones have features you may use. You might plug in how much money you make per week or per month. You’ll then plug in your expenses. The software will suggest various behaviors. You can ignore those suggestions or use them.
Usually, the budgeting software will have you set alerts when you must pay your bills so you won’t miss a payment. It can have you set money aside automatically that goes into your savings account. It may suggest ways to pay off your existing debt without accruing any more.
It might also tell you how much money you’ll need in retirement, when you can retire by continuing at your current earning rate, etc. You can use that information, or you might discard any of it you feel doesn’t help you.
Simple Budgeting Without Complex Tools
You can create and stick to a budget even without expensive software, though. Many individuals do it
every day, and most find success with it.
First, you must calculate your money coming in and going out. If you work identical hours every week and make the same pay, that simplifies matters. If your bills remain consistent, that helps too.
Of course, many individuals don’t make precisely the same amount every week or during any other designated period. If you make different amounts, you must estimate as best you can. The same applies to how much your bills cost. If the cost varies, you might look back at the past year or six months, then come up with an average for budgeting purposes.
Create a Table
You can find free tables online into which you’ll plug your earnings and expenses. You can name each table’s column so you can easily identify it. You might name the expenses things like “electric bill,” “rent,” or “car payment.”
The earnings column might say “paycheck.” If you have another income source, you can add it there. Some individuals have side hustles, and you can certainly include that money.
At this point, you can add up your totals and see what you get. If you make enough money so you cover your essentials, that’s the first step. Ideally, though, you want more earnings than that. You can put the extra toward paying off any outstanding debts, like student loans, credit card bills, and the like.
What if You Have No Outstanding Debt?
During your budgeting, if you reach a point where you have no further outstanding debt, you’re doing great. Many Americans take a long time before reaching this juncture, but it remains possible.
When that happens, you can create a more complex table. This one will have your expenses and earnings, but you can also add columns where you put money into a savings account. That money can accrue interest. You can use it as an emergency fund for those unexpected expenses that come along.
You might start a column and put away excess money every month because you have a significant purchase you want. Maybe it’s something practical, like a new washer and dryer. Perhaps you’re saving for something fun, like a vacation.
You Must Track Your Money
Budgeting simply means tracking your money, and all responsible adults must do it. It’s sometimes a complex process if you have many income streams and expenses, but maintaining control assists you enormously. Tracking what comes in and goes out lets you identify your habits. If you must modify them in some way, this helps you do that.
If you don’t track your expenses and income, you remain clueless about your overall financial health. That’s problematic. You won’t know whether you can realistically afford something or how long it might take till you can pay off your debts.
If you want a software package that helps you, you can get one. If you think that’s unnecessary, you can often create a budget with a simple spreadsheet.
Either way, budgeting helps you in such fundamental ways as an adult that everyone should do it. When someone doesn’t budget, you know they’re still living a childlike existence. They might remain that way for a while, but a time invariably comes when they must join the adult world.