Many people can become overwhelmed or intimidated when it comes to evaluating their finances. However, personal finance isn't that difficult, especially when creating a monthly budget to get an idea of obligatory expenses, and what those little extras cost. With a straightforward list, calculating monthly expenses can actually lead to saving money each month.
When making a list for monthly budget, it is important to categorize all expenses. Starting with the big categories, before breaking the list down into smaller categories, is the best approach. Dedicate one category for essential expenses, and one category for those little extras.
Essential expenses can and usually will include payments such as the mortgage, electric and other utility bills, groceries, gas, and automobile payments, if applicable. Extras can include new clothes, dining out at restaurants, ordering a pizza, and even purchasing that iced latte from Starbuck's.
Once the monthly expenses are listed, it is crucial to figure out which ones can be cut back on, or cut out completely from monthly expenses. Making note of these extras, by putting a star or dot next to them on the paper, can greatly help visualize what money is being spent on. This is where saving pennies can greatly add up.
Another important factor when writing out the monthly budget is to estimate as closely as possible what is being spent. For example, looking at past payment records as in a checkbook, online bank statement, and even online bill payment records will help track what exactly has been spent on the essentials. Looking through past bank statements will give the true nature of what's being spent on the extras as well.
After estimating how much is being spent each month between the two larger categories, extras and essentials, add up each category separately. Adding each category up separately can ensure a better visual of those budget cuts. This is where monthly income will come into play.
Once there are two totals, subtract the total of essential expenses (mortgage, bills, utilities, etc.) from the total monthly income earned. The remaining number is what the extras will be subtracted from. Once the extras have been subtracted from the remainder of what's left after all essential expenses, the last number should not fall into the negatives. If this is the case, it is time to seriously consider cutting way back on all those little extras.
If there is quite a bit left over after calculating both essentials and extras, it's important not to view it as more spending money. Investing, or setting this amount away in a savings account, can greatly build up a nice little egg, especially for times when things get a little rough financially.
What else can be done with that extra amount? If there's any financial debt, it is also a great idea to start paying some of this off. Overall, keeping track of monthly expenses and deciding what can be cut out can greatly improve the chances of becoming financially free.