A budget consists of three main ingredients:
1. Income
2. Expenses
3. Savings
Income is primarily your salary; expenses are what you spend on housing, clothing, food, and transportation; and your savings would be what you put aside for an emergency fund.
Most financial advisers tell you to pay yourself first. The term “pay yourself first” means to have money from your paycheck automatically into an account of your choosing. If you work for an employer that offers a retirement plan then you would want to have those funds deposited into your company’s retirement account.
However, if you do not have a retirement account then you should determine how much money to set aside from your salary and then use the rest on your expenses. For example, if your salary is $30,000 annually, setting aside 5% would equal $1,500 annually into an account separate from your checking or savings account. If you are paid every two weeks, that is $58 each pay period or $116 per month. You would then take what was left over and deposited into your checking account to pay off your bills. https://www.wikihow.com/Pay-Yourself-First
Once you have paid yourself first then what? Look at your expenses and make sure you pay your bills.
If your expenses exceed your income, then you have three options:
1. Get a higher paying job (if possible)
2. Get a second job (if possible)
3. Reduce your expenses.
When you increase your income, use that increase towards your expenses and ultimately your savings goals. Increasing your salary does not meant that you should increase your expenses. Do not get a higher cost apartment or a higher cost house simply because your income has increased. Do not start dining out because your income has increased or start going shopping more than what you did before. If you have been taking public transportation do not go and immediately run out and get a car. The goal should be to save your money towards that car purchase.
A simple budget will include a section for income, a section for expenses and a section for what you may have left over for savings. It will list all of YOUR expenses (housing, car loan, student loan, credit card, day care expenses, medical debt). It will give you the opportunity to determine where you can improve in your income (should you make more money?), expenses (are there things you should and can cut back on?), and savings (what, if anything, do you have left over?)
Your budget can be a weekly, bi-weekly or monthly budget. It is typically best to complete your budget based upon your pay period. If you are paid weekly, then do a budget the week before you get paid and try to stick to that budget. For your expenses that are paid monthly, divide those expenses into four or five payments to show a period of four to five weeks. If you are coming up short, then look to see what can be reduced and eliminated from your budget. Once you have been able to save more maybe then start to spend a little more in certain areas if you can.
The point of the budget is to ensure that you have a life but that you are not in over your head in debt. It is not to be so restrictive. It’s your personal spending plan.