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No matter who you are and no matter how much money you may be earning, it’s absolutely essential that you create a budget and live your life according to it. A budget allows you to fully understand how much you earn, how much of that sum you take home (and how much you need to pay out in taxes and other fees), how much you need to fork out for bills and other obligatory payments and how much is left. The leftover sum determines how much you have available to spend on things you genuinely want to buy.
However, an astounding number of us still choose to ignore this advice and simply live by spending whatever is available in our accounts. The problem with this is that living this way can quickly see us mismanage our finances and begin falling into serious debt. It’s difficult to work your way out of debt, so it’s generally best to avoid this situation in the first place. So, to help you along the way, here’s a guide to creating your first budget!
Work Out Your Total Income After Tax
The first step you need to take is to work out your total income after tax. This is the amount that you will have in your bank account each time you’re paid. The amount of tax you have to pay will depend on the tax bracket you fall into. There are plenty of easy to use online calculators that will figure out how much of your salary is dedicated to taxes and how much you actually take home.
Covering the Necessities
Next, you need to figure out how much you need to put aside for necessities. These can include your rent or mortgage payments, things like council tax, bill payments for energy, bill payments for water, a set amount for food shopping and any payments you may need to put out on contracts, car payments, insurance, and credit card or loan payments. Always keep this money aside in an account that you dedicate to paying your bills from.
What’s Left Over?
The sum you’re left with after all of these payments have gone out is your disposable income. This is the money that you have to spend on whatever you wish. If you have outstanding loans or credit cards, you should put your disposable income off these. This will reduce the amount of time it takes you to pay these bills off and will consequently reduce the amount of interest you pay in the long run.
Helping Yourself Along the Way
There are various ways you can help yourself to manage your money and complete the steps above. There are plenty of money management apps out there that are specially designed to help you manage your finances. Take a look at some reviews of money management apps to find the app that will best suit your needs and preferences.
Reducing “Necessary” Outgoings
Yes, some outgoings are necessary. But there are ways to significantly reduce your spending, even in essential areas.
Your home is likely to be the most expensive thing on your list of outgoings. If you’re renting and struggling to meet rental payments, you may want to consider moving somewhere a little cheaper. Sure, moving has costs tied into it. But if you find something significantly cheaper, it’ll work out more beneficial for you in the long run. The same goes for your mortgage if you’re buying – you can always sell up and then seek out a cheaper property.
Of course, you can’t just decide to live without electricity, gas, and water. However, you can minimise your usage to a degree, which is good for both your pocket and the environment. Another good way to reduce your energy costs is to compare for the best deal regularly. The provider you’re currently using might not be offering you the best price out there!
Food and Drink
Food and drink are essential, of course. But avoid wasting money on branded products when there are cheaper and extremely similar alternatives out there! Try out own brand products and see how they compare.
Purchasing Luxuries in Moderation
Many of us have a “treat yourself” attitude. We’ve worked hard, we’ve seen something we want, so we just buy it. But avoid impulse buying and stick to buying luxuries in moderation. Think – do you really need whatever it is you’re about to buy?
Of course, budgeting may seem like a basic. But so many people neglect this concept. Do your utmost to create a sensible budget and then stick to it. It could make a huge difference to your day to day life and overall finances!