In a 2021 survey, one in four polled Americans admitted they had no emergency savings at all. Roughly the same number said they did, but it wasn’t enough to cover three months’ worth of expenses.

The thing is, not having any savings can result in more financial repercussions. For instance, you may end up taking on more debt, like a high-interest rate loan, if a sudden expense comes up.

Fortunately, learning how to make a personal budget can help prevent such issues. After all, this money management tool can help you control spending, and thus, save more. The greater your savings, the less likely you’ll rely on expensive loans.

To that end, we created this guide to help you start budgeting. Keep reading so that you can better manage your money starting today.

Determine Your Monthly Take-Home Income

In the third quarter of 2021, the median weekly earnings of full-time wage and salaried workers in the US were $1,001. That sums up to $4,004 per month.

Not bad, right? However, those figures don’t include payroll deductions, including taxes, contributions, and insurance, yet.

For that reason, it’s best to use your take-home income as your guide when creating a budget. That’s the actual money you get after all your payroll deductions. On a paycheck or payslip, it’s the amount often written beside the field labeled “net pay.”

You’d want to determine your take-home pay since it’s what you can spend or put toward savings.

Factor in Other Income Sources

According to the latest federal data, an estimated 7.8% of US workers held two or more jobs in 2018.

If you’re one of those individuals, be sure to factor in the net wages you get from your other jobs.

For instance, aside from wages or salaries, you may also be making money from investments. An example is an investment in the stock market, which over half of US households have. Another is the dividends paid by, say, your cash-value life insurance policy.

Once you’ve listed all the other ways you make money every month, add them to your primary take-home income.

Tabulate Your Monthly Expenses

Tabulating your expenses gives you a clearer picture of where all your money goes. It allows you to figure out where your finances stand and anything you can do to improve it. After all, it’s a visual guide that tells you what exactly you’re shelling out cash for and why.

Once you list your expenses down, categorize them as fixed or variable.

Fixed Expenses

Fixed expenses are recurring charges or costs with a set or a non-changing amount or price.

Some examples are payments for fixed-rate loans, such as mortgages and car loans. Auto and life insurance premium payments also go under fixed costs. The same goes for internet, phone, and online streaming plans with fixed rates.

Variable Expenses

Variable expenses are expenditures with changing or fluctuating prices.

For example, if you’re one of the 191 million US adults with a credit card, your monthly payments are variable. The same goes for electricity, water, and gas bills. Other examples are grocery, food, entertainment (such as movies), and personal shopping costs.

Find Out How Much You Have Left to Save

Once you’ve listed all your monthly expenses, sum them up and deduct them from your total income.

For example, suppose your total income after deductions round up to $6,000 a month. Let’s also say all your monthly expenses (not including personal savings) add up to $5,500.

In the above scenario, you’d subtract $6,000 from $5,500. That means you have $500 left to save.

Trim Costs You Can Do Without

Ideally, you’d want to strive to save at least 20% of your income. So, in the example above, where your total net income is $6,000, you should aim to save at least $1,200 a month. Meaning, a $500 monthly saving doesn’t cut it; instead, it’s close to 60% or $700 short.

So, as part of your budgeting methods, go through each item on your expense list. Then, ask yourself, “what do I need this for?” or “why should I buy this?”

If you can’t come up with a good enough reason, then it may be best not to spend money on them at all. Instead, you can cross those items out of your expense list and put the cash toward your savings account.

Here are a few examples of costs you can trim so that you can put more money toward your savings.

Food Away From Home

Instead of splurging all the time on food away from home, why not go for homemade meals instead? A good enough reason is that restaurant food is pricier, as you’re paying someone else to prepare it. Even if both grocery and restaurant prices went up in 2021, making your meals still cost far less.

Interest Payments on Debts

Another way to trim expenses is by paying off as much debt as possible. That may sound counterintuitive, but it can help by reducing loan interest payments.

One option is to clear off a loan with the highest interest rate. You may also transfer credit card balances to an account with a much lower monthly rate.

If you want to pay off multiple debts, consider consolidating them. To do that, you can apply for a debt consolidation loan. You can then use the new loan’s funds to pay off debts like credit card balances and personal loans.

Since a debt consolidation loan is still a loan, make sure it has a lower interest rate. The new loan’s total cost should also be much lower than the combined cost of your other debts.

Be sure to look for loan programs without costly penalties or charges, too. For example, according to this Plenti debt consolidation loan guide, you’ll find loans with no early repayment fees. That’s a perk you want so that you can pay back your debt early and in full without worrying about extra costs.

Follow This Guide on How to Make a Personal Budget

Having some debt is acceptable, so long as you can pay it back on time and you still have left-over cash to save. However, that can be challenging unless you manage your finances properly.

That’s why it’s crucial to learn how to make a personal budget. From there, it’s just a matter of committing yourself to stick with your financial plans.

Are you interested in other financial or even business and management guides? If so, feel free to browse our latest informative posts on these topics!