It is true that creating your budget is no fun. It’s even more challenging, if it is your first time. You have no clue where your money is going and the amount of monthly transactions are enough to scare even the most courageous one.
50/30/20 type of budget is a good starting point for a beginner. Here is how you can get started to create your first budget an easy way:
Start with Your Net Income. Net income is your gross pay minus all deductions including income tax, social security and medicare taxes. Add 401k contributions, health insurance premium and union dues to your net income.
Limit Your Necessary Expenses to 50% of Your Net Income. "Necessary Expenses" include all the expenses which are basic in nature and you can’t avoid it, like utility bills, food, childcare, transportation and insurance. A rule of thumb is that if you can’t delay a payment for a few months without serious consequences then it comes under the category “Necessary Expenses”.
Allocate about 30% of Your Net Income to Discretionary Expenses. “Discretionary Expenses” are money spend on dining out, gifts, money Vacations, gifts, entertainment, and clothes. These are expenses which you can avoid for months without serious consequences.
Use 20% on Savings and Debt Repayment. Remember too much debt and too little savings is a sure recipe for disaster. It is recommended that you spend about 20% on debt repayment and savings. To achieve financial independence always contribute regularly to this category of your budget.
Everyone has unique situation, so feel free to tailor made it to suit your needs.
50/30/20 type of budget is a good starting point for a beginner. Here is how you can get started to create your first budget an easy way:
Start with Your Net Income. Net income is your gross pay minus all deductions including income tax, social security and medicare taxes. Add 401k contributions, health insurance premium and union dues to your net income.
Limit Your Necessary Expenses to 50% of Your Net Income. "Necessary Expenses" include all the expenses which are basic in nature and you can’t avoid it, like utility bills, food, childcare, transportation and insurance. A rule of thumb is that if you can’t delay a payment for a few months without serious consequences then it comes under the category “Necessary Expenses”.
Allocate about 30% of Your Net Income to Discretionary Expenses. “Discretionary Expenses” are money spend on dining out, gifts, money Vacations, gifts, entertainment, and clothes. These are expenses which you can avoid for months without serious consequences.
Use 20% on Savings and Debt Repayment. Remember too much debt and too little savings is a sure recipe for disaster. It is recommended that you spend about 20% on debt repayment and savings. To achieve financial independence always contribute regularly to this category of your budget.
Everyone has unique situation, so feel free to tailor made it to suit your needs.
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