If you are exploring the possibility of starting a budget because you want to stop overspending your income, you’re in the right place.
One of the primary reasons people decide to start a budget is because they spend more money than they make, causing a stressful juggle between bills.
When creating a budget, one of the most important phases is to determine your present financial status.
This means the precise amount of each and every piece of income you receive.
People may find this challenging, especially if they are not comfortable with math or have several streams of income to handle.
This chapter is written for you if you are a person who is not sure how to calculate your exact earnings or has difficulties doing so.
If this feels like a difficult procedure and causes you to feel stress, work on it when you aren’t in a rush and can take your time gathering the information.
With the recommendations and useful knowledge you will gain in this chapter, financial success is just around the corner!
Continue reading to learn how to stop overspending your income, why it’s important, and steps to get it in control.
Figure out how much money you make
If you want to create a useful budget that helps you stop overspending your income, the first step is to figure out how much money you make on a monthly basis.
A good budget allows you to see exactly how much money you’re bringing in each month and where it is being spent.
Because there will be many numbers to consider, using a calculator will give you the quickest and most accurate results.
All sources of income need to be included, no matter how minor they may seem to you.
Many individuals make the mistake of not including small amounts because they believe particular sorts of revenue are too small to consider.
As you add up all your monthly income, you may find it motivating to see how quickly several small amounts add up to one large amount.
Determine your exact monthly net income
Your net income is the amount of money you take home from your job after all deductions are calculated and subtracted out.
Locating your past 3 months of pay stubs is the simplest way to get this number.
If you don’t have your pay stubs available, check your bank statement or online bank account app for the amount that was deposited into your account.
If you need to calculate this number yourself, maybe because you are starting a new job and haven’t received a pay stub yet, follow these steps:
- Begin by finding out your hourly wage and multiply it by the number of hours you work each week (if you work on hourly pay.)
- Calculate your gross monthly income using the amount of money you will be earning before any deductions such as federal tax, state tax, etc.
- Then calculate your take-home pay by subtracting taxes and deductions from your gross monthly income.
- For example, if you earn $40,000 a year and the government withholds $4,000 in taxes over the course of a year, your net take-home pay is $36,000 a year.
- To get your monthly income, divide this number by 12 because there are 12 months in a year.
What if your income changes each month?
If you work a diverse schedule, choose the lowest number of hours you are guaranteed to work so you don’t fall short of income in your budget calculations.
It is better to have extra money leftover than scrambling to figure out how to pay a bill because you don’t have enough money in the bank.
If you work sporadic jobs without any guaranteed income, such as lawn care, handyman jobs, etc., the first thing you need to do is calculate an average amount of money for the previous six months to a year.
It is suggested that you utilize a month with difficult circumstances while creating your budget so that you have room to breathe while doing it.
It’s also vital to remember that other forms of supplementary income should be considered.
Any amount has to be taken into account, regardless of how small it is. This is because while calculating how much money you earn on a monthly basis, you must be extremely accurate.
Consider everything such as alimony, child support, government assistance, sale of personal items, etc., when putting your yearly income together.
Even something as little as cashback on credit card purchases should be taken into account in your yearly earnings calculation.
We have covered the biggest reasons most people don’t stick to a budget and how to overcome these challenges, went through the fundamental principles of how a budget works, and the importance of knowing your present financial status so you stop overspending your income.
The next step is to create a realistic and practical budget that fits your life so you can get started and take control of your financial future.
Let’s dive in and get started creating your budget in the next chapter!