Written by: Guest | Best Company Editorial Team
Last Updated: July 8th, 2020
Guest Post by Brian Meiggs
The number one rule in personal finance is to spend less than you make. This can be accomplished by having a budget which can help you save money and make your financial goals a reality. How much you have in your savings account depends on how much you are budgeting each month.
The typical American household has an average of $8,863 in an account at a bank or credit union, according to a recent report from Bankrate that analyzed inflation-adjusted data from the Federal Reserve.
How do you stack up?
Here are five easy steps to put a solid budget plan in action so that you can save more money:
1. Determine your income
Your first order of business is to figure how much money you have coming in from your job and any variable income from side gigs. If you have variable income, such as driving for Uber Eats full time, then you will need a different style of budgeting system and you’ll need to learn how to manage your variable income to the tee. It’s crucial to budget for how much money you have coming in every month in order to meet your expenses.
2. Determine your fixed expenses
Your next step in creating a budget is accounting for your fixed expenses. Fixed expenses are recurring monthly charges like bills, rent, car payment, and your student loans. Your fixed expenses do not change monthly and can easily be accounted for.
3. Determine your variable expenses
After figuring out your fixed expenses, take a look at your variable expenses. Variable expenses change from month to month and include spending on eating out, date nights, recreational fun, and other shopping-related expenses. When you are focused on lowering your monthly expenses, you usually start with variable expenses to find ways to trim spending.
4. See where your money is going
After you have a solid picture of where your money is going — it is time to evaluate. Ideally, you would want to create a budget where your expenses are less than your income. This means that fixed costs should take up no more than 50 percent of your income. Variable costs that change monthly should take up 30 percent and you should allocate 30 percent towards savings, ideally in a high-interest online savings account.
5. Adjust your expenses to meet your goals
After you create a budget, you want to find ways to trim spending and be able to put more money towards savings. This can be done by using automated saving tools like Digit and Qapital, restricting variable expenses, canceling unnecessary subscriptions, and living below your means.
The bottom line
Making and managing a budget consists of a few common-sense factors: determining your income, determining your fixed expenses, determining your variable expenses and seeing where your money is going, and adjusting your expenses to meet your goals. When you get serious about your budget, you will find more ways to save and perhaps you can be debt-free at last.
Brian Meiggs has a Finance degree from Virginia Commonwealth University and founded My Millennial Guide after six years of Financial, Accounting, Mortgage, and Credit Lending experience in Virginia and Washington, D.C. Meiggs has spent the last several years writing about personal finance and been quoted in prominent online publications, including Yahoo! Finance, NASDAQ, MSN Money, AOL, Discover Bank, and GOBankingRates.