Many people dream of being rich but aren’t sure how to obtain an abundance of wealth or where to start. You can start by learning how to budget. Budgeting is essential because it can help you begin to establish wealth and reach your savings goals. Here are a few key steps to budgeting as a young person.
Track Your Income & Expenses
The first step to creating a budget is to find out how much money you have and what you are spending it on. Tracking your expenses will allow you to categorize where you spend your money. Organizing how you spend your funds is important because you can determine how much you want to spend in each category. You can keep track of your income and expenses by using a money journal, cash book, spread sheet, or a notebook. Each time you earn money you track it as income and, each time you spend money you track it as an expense.
If you’re using a debit card, try going back three months into your spending history to get a more detailed look at what you’ve spent money on in the past.
Determine Your Income
The next step is to determine your income. You can estimate your income by calculating the amount of money you receive through work, scholarships, gifts, etc.
Calculate Your Expenses
Once you’ve determined your monthly income, find out the total of your expenses. First you should determine what your fixed and variable expenses are. Fixed expenses are bills that are the same price each month. Fixed expenses include rent, car payments, and internet. Variable expenses are costs that fluctuate, such as groceries or utilities.
Be sure to include your debt payments in your budget. Determine how much you can pay towards those debts to ensure that you are on the path to establish financial stability. Managing debt and savings go hand in hand.
Categorize and Compare
After calculating your expenses, categorize what you spend your money on. You can organize your expenses using columns, graphs, and other charts. These categories can be as detailed as you’d like them to be.
Now you can compare your income to your expenses. Your goal is to have more income than expenses. If you end up having more expenses than income you should find out where you can cut costs.
Be sure to include your debt in your expenses.
Don’t Forget About Savings
It’s easy to forget to save money. Remember to always pay yourself first. Try to put 10 to 20 percent of your income into savings. As a savings boost, you can also add any money you didn’t spend in your budget to your savings.