Everyone needs a budget. But so many of us go through life without one. Realistically, this is a skill that should be taught in schools, as effective money management is an essential life skill. But nowadays, it’s not on many schools’ syllabus and it’s a skill that we’e left to pick up ourselves. The good news is that we’re here to help! As you can imagine, a budget helps you to actually understand how much you earn, how much of that sum you take home (as taxes and other fees often need to be deducted), how much you need to fork out for bills and other essential payments and how much is left over for you to spend as you wish. The leftover sum is known as your “disposable income” and can be spent on products, trips, experiences, days out, meals, savings or anything else you like. If you fail to live your life by a budget, it’s highly likely that you will overspend when it comes to disposable income and will find yourself slipping into debt. Here are just a few steps that you can take to create the perfect budget for your means!
Work Out Your Total Income After Tax
When creating a budget, you first need to know what you’re working with. All too many people see their salary written down and think that’s how much they have available to spend throughout the year. But really, you are legally obliged (in most countries) to pay tax out of this sum. The amount of tax you have to pay will depend on which tax bracket you fall into. Research this, as figures will differ according to where yoy live and how much you earn. There are a number of free online calculators that can help you to figure out your income after tax contributions.
Covering the Necessities
There are certain costs that you have to pay. These are considred “essentials” and include:
- Rent or mortgage payments
- Council tax
Other spending may be essential, such as car payments if you need a car to get to work, internet if you require internet for a remote job and more. Make sure that you deduct these costs from your take home pay. Then, you will be left with your disposable income.
Account for Debts
Now that you know your disposable income, you can spend as you please. But if you have outstanding debts, it’s highly recommended that you attribute as much of your disposable income as possible to clearing your debts. This will help you to become debt free faster. There are a number of debt negotiation services out there that can help you manage and reduce your debts further alongside this.
If you have no debt, you’re left with your disposable income. Spend this as you please! Just make sure you don’t exceed it and you should stay in the black!
As you can see, a budget really is important to stay above water with your finances. Hopefully, some of the above information will help you to come up with an effective budget of your own!