Budgeting is an essential task for your financial well-being, but it takes time and preparation to do it right. There’s more that goes into a budget than a simple income minus expenses calculation. Without planning, you’ll find yourself in the red more often than the black.

Know Your Income

If you’re a salaried employee, this is simple. But if you’re paid hourly and your hours vary, or you’re a freelance contractor or business owner, your income varies from month to month. In this case, come up with an average on the low side. If for any reason your income decreases in a given month, recalculate your budget using this new lower figure to be safe.

Calculate Your Current Spending

In order to properly plan a budget, you need to know where your money is being spent right now. That means keeping track of your expenses for the next month and breaking it down into categories to determine what percentage of your income is going where.

Identify Areas to Cut Back

If you keep track of your expenses for a full month, documenting every cent you spend, you’ll have everything you need to figure out where you can cut back on spending. Many people don’t realize how much money they’re spending each month on non-essentials. After you see it in front of you, it’s easier to recognize poor spending habits and start to pay attention to how much you’re spending on extras such as dining out and entertainment.

Avoid Spending Beyond Your Limits

If you find that you’re spending more money than you bring in, it’s time to reevaluate where your cash is going. It’s simply not possible to sustain expenses that exceed your income. But there are ways to reduce your expenses, such as getting a more affordable vehicle at a new and used car dealer Baltimore or whatever city is nearest you.

Never Count on Income That''s Not Guaranteed

It’s easy to look forward to extra cash in the form of annual bonuses, income tax refunds or other windfalls, but you should never calculate those funds into your regular budget. If you don’t plan on receiving those funds, you can use that cash to contribute to your savings or entertainment fund when it arrives.

Treat Savings as a Bill Owed to You

One of the most effective ways to build up your savings is to pay yourself first—treating it as though it’s a monthly obligation to a creditor. Having money in a savings account available for an emergency is important, as well as building a nest egg for retirement. The sooner you start treating your savings contributions as a regular monthly expense, the better off you’ll be in the long term.

Planning a budget takes time and patience. But with the right information at your disposal, you can create a comprehensive monthly budget that leaves you in the black and allows for unexpected emergency expenses and the occasional luxury spend as well.

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