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Create and Manage a Monthly Budget With DebtQuest USA
August 16, 2020

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Create and Manage a Monthly Budget With DebtQuest USA

Recent surveys have revealed that the increasing cost of living continues to outpace the meager income of average American households. According to the Consumer Expenditure Survey conducted by the U.S. Bureau of Labor Statistics, annual household spending increased by a total of 4.8%. In comparison, the average income before taxes of American households ebbed by 1.5%.

This great inequality in the income-expense ratio of Americans implies the struggles in making ends meet within a limited budget. This also underscores the importance of creating an effective budget management system within households to ensure their ability to afford basic necessities and uphold common standards of living.

In purchasing items — be it in an average household or in a business company — buyers must always consider one thing: “is it within my budget?” Another is, “will it benefit me in the long run?” This healthy degree of skepticism before every purchase and expense is pivotal when trying to work within a limited income, and when sticking to a planned budget. Budgeting is one of the most common and instrumental mechanisms to secure financial independence and a debt-free status.

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Getting Started With Budgeting

A budget is an estimation of one’s revenue and expenses over a specified period of time. Budgeting is the process of creating a plan on how to properly spend your money. Most salary payouts and bills payments happen every 15th or 30th of the month. Hence, it is ideal to set a monthly budget to calculate your income vis a vis your monthly expenses.

The very concept of budgeting may feel daunting and restrictive. Calculating expenses may reflect just how little you can spend on simple pleasures and leisure activities. But when done right, you do not have to compromise much of your financial freedom for stability and realize that creating an effective budget plan can enable you to better manage your finances to fulfill both basic necessities and leisure.

But is calculating monthly income and expenses worth the trouble? Definitely! There are a lot of reasons as to why budgeting is important. One is that it enables you to focus on your long-term goals, and it keeps you from recklessly spending your money on things that will not benefit you in the long run. Being mindful of your monthly spending can allow you to make wiser financial decisions and lessen the risks of falling into financial debts. Eventually, budgeting can also lead to a happier and more financially secure retirement.

DebtQuest USA primes itself with the objective of helping American consumers manage their finances and live a life devoid of unsecured debt obligations. It offers services and consultations that can help households to have a better budget, as well as a credit management system.

Budgeting living expenses is among the first steps toward financial independence and stability. This debt settlement company can guide you on how to calculate and manage your budget upon talking to one of their representatives now! This page will also give you an overview of the steps you can undertake to budget household expenses.

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How to Create a Monthly Budget

Be aware of your spending habits, and do not get lost in the inflows and outflows of your money. To do so, create a monthly budget plan that works. There is no single fool-proof method of budgeting since an effective plan strongly relies on your income and expenditures. It is a matter of self-discipline and perseverance to stick by your budget to reap positive results. You can also tap the services and resources offered by DebtQuest USA in devising a good budgeting formula. Here are some ways to get you started.

Know How Much You’ll Be Earning and Spending

Gather your financial statements, documents, and bills that indicate your monthly income and expenses – for instance, electronic payment receipts, benefit statements, paycheck stubs, etc. Doing so would truly reflect the amount of money you will receive and spend, and this will improve the accuracy of the budget you will be planning.

Collecting these pertinent documents can help you to keep a faithful record of your income and spending items, especially those that may vary in value from month to month.

How Can I Calculate My Monthly Income?

Calculating your monthly income is not as easy as dividing your annual revenue by 12 months. In fact, you only need to take note of your take-home income, or the salary you get minus the taxes and other fees. You must also add other sources of income, such as interest and dividend earnings, social security, pension, child support, etc.

You can calculate your monthly income depending on when you are paid.

  • If you are paid every two weeks: Multiply one of your paychecks by 26 (number of paychecks in a year), then divide the product by 12 to get your monthly income.
  • If you are paid weekly: Multiply your weekly earnings by 52 (number of weeks in a year) then divide it by 12.
  • If your payment is inconsistent: If you do not have a consistent payout -especially for the case of freelancers, and commission-based workers – you can add up three months of your income and divide it by three to estimate your monthly income.

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List Your Monthly Expenses

Once you already have an overview of your cash inflows, you must now compute your expenses. One of the traditional yet most effective ways to do this is to list your monthly expenses. This would be the amount of money you will take away from your earnings.

In order to calculate your total monthly expenses, you must record recurring expenses such as utility expenses, housing, loans, insurance, investments, subscriptions, and other expenses that you regularly pay for. Moreover, you must also anticipate unprecedented expenses such as medical expenses and miscellaneous payments. Having a more realistic and encompassing monthly expense budget plan can aid you to better manage and allocate your money. You can also use bank statements and receipts over the past three months to identify your spending items.

Distinguish Your Fixed and Variable Expenses

Fixed expenses are those regular payments with fixed amounts. These include:

  • Mortgage or rent payments
  • Car payments
  • Subscriptions
  • Regular childcare expenses

If you are aiming to pay off a debt in a certain amount of time, you can opt to include debt repayment as part of your fixed expenses. This ensures that you have money reserved to attain this goal and comply with your established deadline.

On the other hand, Variable expenses, as the name suggests, are expenses whose amounts may vary from time to time. These changes may be from fluctuating economic conditions and price changes, and may be influenced by your lifestyle and wants, rather than needs. This includes:

  • Groceries
  • Utility expenses (i.e., electricity, water bill)
  • Leisure activities
  • Miscellaneous expenses

To proceed with budget calculation, start indicating the amounts of your fixed expenses, then estimating the costs of variable expenses. Don’t fret if you’re not entirely sure about your variable expenses. You can opt to review and average your expenses within the past three months to obtain a more accurate estimate.

Total Your Monthly Revenue and Expenditures

Think of your total income as the pool of money from which you will extract your payments. The simplest way is to add up the columns of your expenses and total income. Then, subtract your total expenses from your total income. Thus, if your income is higher than your expenses, then you’re off to a good start!  You can invest the extra money into more productive activities such as retirement savings or investments. You are also guaranteed to have funds to spare if ever there is an emergency.

There are also resources readily available online that can help you in planning a budget, such as a budget calculator based on salary. This follows the same principle of listing your expenses and totaling your monthly income.

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How to Manage Monthly Budget Worksheets

Creating monthly budget worksheets is extremely helpful to get a bird’s eye view of your financial situation. If you feel discouraged since you barely know the tweaks in creating worksheets from software such as Microsoft Excel, there are downloadable worksheets online that you can readily use! Within a few clicks, you can plot a more organized monthly budget.

Financial situations may greatly vary from month to month, and having budget worksheets can help you examine these changes and plan appropriate financial actions. Some of the monthly budget examples covered by these worksheets are:

  • Net Income Worksheet and Calculator: This worksheet tallies your sources of income (i.e., wages/salaries/bonuses, interest income, and investment income) and subtracts payment deductions (i.e., tax and insurance premiums). This details your income, deductions, and your actual take-home pay.
  • Expenses Worksheet Calculator: This helps you calculate your monthly expenses based on your budget. Columns are dedicated to Monthly Budget amount and Monthly Actual amount, which will allow you to see the difference between your anticipated and actual costs. This can guide you to adjust your spending accordingly.
  • Surplus or Shortage Calculator: This combines and compares the prior worksheets mentioned. Basically, it will subtract your total monthly spending from your total monthly income. If the difference is positive, then it is considered a surplus. This implies that you have excess money to spare. Consequently, if the difference is negative, then you have a shortage, and you might need to look into your finances and make necessary adjustments.

Evaluating Results and Making Budget Adjustments

Using worksheets will not only help you track your budget, but this can also guide you in making necessary financial adjustments. Supposing you gain a shortage, meaning you are spending more than how much you’re bringing in, you must look into where you are spending, evaluate whether your spending is justifiable, and then make the corresponding adjustments to lessen the costs of your expenditures.

In the same survey results presented by the Bureau of Labor Statistics, housing expenses account for the largest portion of monthly spending within American households, resulting in annual spending of 33.1%.

DebtQuest USA offers debt consolidation and debt relief services, and we can help you lower your mortgage payments. Adjusting areas where you spend huge amounts of money is crucial when wanting to ensure the success of your budget.

On the other hand, should you find that your monthly income exceeds your expenses, and you have attained a surplus, you have an opportunity to do something productive and beneficial out of your extra cash. Perhaps you can build up an emergency fund or allocate your money to your child’s college fund. You could even invest it in enterprises that can bring you passive income. Through surplus or shortage, DebtQuest USA can guide you in making cost-beneficial and informed decisions.

Given that you already have your monthly expenses listed, it’s important to keep track of them and maintain healthy credit management to lessen your risks of unconsolidated debts. It is advisable to consider setting up automatic repayments of recurring expenses, such as your fixed expenses, to ensure that your payments are regularly updated. You can do this by crafting a bills payment calendar. There are no but’s and excuses as the Consumer Financial Protection Bureau already provided a sample here.

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Setting Short-Term and Long-Term Goals

Now that you have a clearer and more precise understanding of your financial status, you can set realistic short-term and long-term goals. They will be attainable since you already know the resources you can exhaust in order to fulfill these objectives.

Long-term goals refer to the ultimate objective that you want to achieve. For example, your long-term goal is to pay your card balance of $20,000 in two years. Two years is a long time, and that balance is certainly a big amount to raise; hence, it can be referred to as a long-term goal. It is something that you will work on over the course of time.

Short-term goals are active goals that can help you achieve your long-term goal. Still using the same example, short-term goals may be applying for a part-time job to get an extra income or lowering your expenses for the next few months.

Thus, creating a budget, or at least having a sufficient overview of your financial standing is important before setting your financial goals. Doing so makes you more aware of the resources that are available or unavailable to you.

If you still find yourself confused or hesitant with your own judgment, DebtQuest USA consultation services are more than willing to help you to make your financial goals a reality. Tell us what you want to happen, and we will make it happen with you.

Setting a Budget Scheme That Works for You

Your monthly budget must not only look good on paper. It must be translated into financial actions, and eventually, a lifestyle. Establishing a budget scheme or system delineates the guidelines on how you can follow and keep track of your budget.

How the 50/30/20 Rule Works

The most common rule of thumb when it comes to budgeting is the 50/30/20 rule. It is coined by U.S. Senator and previous Harvard bankruptcy expert, Elizabeth Warren, as a highly commendable way of managing your budget. How does it actually work?

As the rule suggests, you must allocate 50% of your after-tax income to needs such as utilities, housing, groceries, insurance, and fixed payments. This begs the question of whether an expense is a need or a want. Needs are obligatory, those that involve high stakes, while wants are expenses that you can forego with minor inconveniences.

Thus, you can limit your wants to 30%. What would you do with a lot of money without a little joy, right? But take note that wants are not reckless extravagances such as branded shoes or accessories you do not really need, and you cannot regularly wear for work. These are basic niceties in life like cosmetics, toiletries, and salon appointments.

The remaining 20% will then go to your savings and debt repayments. These savings can be your emergency fund or your retirement savings accounts. It is better that you are financially prepared for the future and other unprecedented events. Securing 20% of your income for debt repayments can also ensure better credit portfolio management and payment updates, lowering the risks of extra charges and interests.

This has been the holy grail for budgeting since it already takes into consideration your needs, wants, and other necessary finances like savings and repayments.

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Other Budgeting Practices

A more traditional approach to budgeting is the Cash Envelope System. Basically, you designate a certain amount of cash for certain expenses and seal it in an envelope. This is best to ensure that you are not spending more than what you can afford.

This is recommended for people who do not like crunching numbers or keeping track of receipts (although that is extremely inadvisable) for you already carry the actual money that you need, and that you can actually spend.

However, this method is not advisable, especially when considering unforeseen circumstances and emergencies. It can also be counterproductive, as you find yourself spending the money more easily since you already have it at hand.

Budgeting Apps That Can Help

You can take advantage of free applications and software that can help you in keeping track of your budget.

  • Everydollar: This is an application that connects to your bank account and/or credit cards. You can use the app to easily import and assign transactions and calculate how much you have left to spend in each budget category.
  • You Need a Budget (YNAB): This is a budgeting program that also connects to your accounts. Through this, you can easily check the difference between your budgeted expenses and actual expenses to avoid committing deficits.
  • Dollarbird: It is another budgeting application that enables you to track your expenses on a daily basis. It will give you a monthly overview of expenditures, which is highly recommended for those who want to observe their daily, minimal expenses.

Budgeting Tips

  • If you are paid once a month, you can choose to downscale your budget on a weekly basis. This can help you get a stronger grasp of your finances and better manage your expenses. Still, work with your preference.
  • Only pay with a credit card if you are certain you’ll be able to pay it off within the month. This is to ensure you would not be charged for extra interests that might wreck your budget.
  • Adjust your budget wisely and regularly. Remember that it must be in line with recent price changes, or you might find yourself underestimating your monthly expenses.
  • Invest some time to explore investments that grow your money and enhance your financial skills and literacy. You can all do that with us at DebtQuest USA.

How Can I Maintain My Budget?

From planning to creating and implementing a budget comes the greatest challenge of all, which is to maintain it. The most important ingredient in maintaining a budget is self-discipline. Since you hold your money, ultimately, you must responsibly regulate yourself when it comes to expenses.

A crucial factor to be considered is the difference between necessity and senseless luxuries. Eating is necessary, but eating at a five-star restaurant when you are on a limited budget can be seen as excessive. Purchasing a car is necessary if other means of transportation are unavailable to you. On the other hand, purchasing a newer model of car when you already have a perfectly functioning one is a luxury.

All the applications and methods explained in this guide can also help you maintain and track your budget, so long as you responsibly follow it.

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Start a Successful Budget Management System with a Credit Counselor

The process of budgeting can be a bit overwhelming, despite these resources that are available at your disposal. The challenge is greater for those struggling with debts and poor credit management. This is when it is high time to consult a credit counselor for you to build an effective budget system.

DebtQuest USA offers services and consultations for debt consolidation, credit card debt, and debt relief. We also aim to improve the financial literacy of our constituents to guarantee their debt-free futures.

Your road to financial freedom and independence is just a click away. Talk to one of our representatives now.

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