Usually every person has to worry about various expenditures, savings, investments and future security. So it doesn’t vary much from person to person as this is a very big question on how to manage the monthly expenditures and what percentage of an income is supposed to be spent on savings, house payments, groceries and more. Here is a list of steps to follow while spending so as to manage money at its best.
- Collect all the Financial Documents:
- Know the Income:
- Make a List of Monthly Expenses:
- Redistribution of Funds:
It may include pay check stubs, bank statements, monthly bills, receipts, etc. The more number of documents available, the better scenario of the picture would them give. It will bring one closer to seeing the full picture of the financial status.
It is always better to write down about the money that one gets from the job, from family members (if regular income), as a contractor and fetch all the sources that supplies money. It is just to make sure that net income numbers are applied when applicable.
Always write down everything one can think of about the monthly expenditures or where all the money is spent. Another important point to note here is the fixed monthly and variable expenses are most important to be calculated. Some of them can be house rent, utilities, groceries, etc.
As far as budgeting is considered, redistributing funds is next to compulsory. If one has not had a budget in a while, then the results may seem a bit shocking to him/her. This step basically aims at organizing the expenditure so that the budgeting can be brought back on track once again.
Although there are no hard and fast rules surrounding exactly what one should pay for certain things in the budget, there are a few threshold things all must keep in mind as the redistribution is attempted. Some people also believe in thinking of expenses more in terms of categories than as individual expenses. For example, a housing expense may include rent or mortgage payment, utilities, cable and other costs which are associated with maintenance of the home.
Experts agree that around 30% of the total, after tax income should be fixed on housing expenses. Thus if a person has an annual income of around $ 40,000, this equates to $ 1000 per month. Similarly items such as clothing, toiletries, food and loans should eat up approximately 15% of the take home salary which an also mean a $ 500 monthly for the same. Transportation can be another expensive category at times and one has to spend money unwillingly though. It can consume around 15% of net income on car payment, insurance oil changes or gas.
- Set Targets:
It is always necessary to think about the future and act from now. This setting of a goal indicates at affairs like weddings, college education, pay off debts and more of such big expenses. Thus, it is better to put more of “disposable cash” (i.e. the amount left in the unallocated 40%) towards reaching such goals.
Hence considering all the facts above, the sooner one can make a budget, the earlier would he/she be able to get back on the track of financial freedom.
About Author: Manic is an experience writer and have been writing on various topics like Fast Loan Today, Small business, Noble Loans Sydney, Finance and more. He is also a regular contributor on Settlement Loans