AARP Expert Martin Booker offers the following tips:
Income: List all of your income from all sources. Be sure to include sporadic and variable income as well when you budget. When creating your budget, it is better to round down on your variable income in order to prevent a deficit. For example, if your take-home pay is between $489 and $515 a week, you may want to set your projected income at $480 and adjust the income line on payday. Your income is what you will use to fund your current lifestyle and reach your goals.
Expenses: Include all expenses in your budget. It is easy to forget about spending related to self-care or gratuity but as much as you can estimate these expenses, the more accurate your budget will become. It’s important to round up on your expenses if it is a variable expense. By doing so, you can prevent a deficit in your budget when you make payments. For example, if a utility can range between $40 and $55, you may want to set it in your budget at $60 and adjust your budget when you make the payment.
The difference: This is the balance remaining after subtracting your expenses from your income. The difference is the amount of money that you are able to use, for example, to pay off more debt, give to charity or increase your savings. The more that you can increase your income and/or lower expenses the larger the difference. When you determine how you will use the difference, you can determine how soon you can reach that goal by knowing your difference. Any time that there is a deficit when subtracting your expenses from your income, you have two choices. You can either increase your income or decrease your expenses in order to break even or have excess.
After creating your budget, become familiar with your numbers. If you have a significant difference between your income and your expenses, create some important goals to reach such as increasing retirement savings, paying off debt, or saving money for a child’s college. When you know these three numbers, you will be more aware of your finances which can lead to better money management.
