Connect with us

Hi, what are you looking for?

Budgeting

How to Make a Budget for the New Year

Are you looking to get your finances in check in the new year and put a budget in place you can stick to? Read our step by step guide on how to make a budget for 2020.

how to make a budget

If one of your New Year’s resolutions is to figure out how to make a budget, you’re in the right place. Though you may have been putting it off, establishing an effective budget isn’t difficult. In fact, it’s quite easy. Follow our step-by-step guide below to kickstart your financial wellness and learn how to make a budget for the new year.

Step 1: Determine Your Gross and Net Income

When figuring out how to make a budget, you first need to determine how much money you have each month. To do that, you need to determine your gross and net income.

Gross income is how much you make before taxes and other deductions are taken out.

Net income is what you make after those things are taken out (meaning the money that actually gets deposited into your bank account).

Calculating Your Gross Monthly Income

To calculate your gross monthly income, take your annual salary and divide it by 12. To calculate your gross monthly income if you are paid hourly, first, multiply your hourly pay by the number of hours you work per week, then multiply that number by 52. Then divide by 12.

Calculating Your Net Monthly Income

The simplest way to determine your net income, or your take-home pay, is to look at your paystubs. However, there are also a ton of free calculators online you can use to estimate your take-home pay, such as this one.

Step 2: Calculate Your Fixed Expenses

If you’ve Googled how to make a budget before, you’ll know that the next most important amount to calculate, is your monthly expenses. There are two types of expenses: essential and nonessential.

Bills you have no control over are what we call essential expenses, and they include things like:

  • Rent
  • Mortgage
  • Auto Loans
  • Health Insurance
  • Student Loans
  • Electricity
  • Water/Trash

Nonessential expenses are expenses you choose to have. They include things like:

  • Gym Memberships
  • Cable TV
  • Smartphone Data Plans
  • High-Speed Internet
  • Netflix
  • Music Lessons
  • Sports Fees

When it comes to your budget, you need to add up all your fixed expenses and subtract that amount from your net pay. The remaining amount is what you have to work with each month, and only a small portion of that amount should go to nonessentials. Obviously, the idea is to have as much money left over at the end of the month as you can—meaning anything you can cut out you should cut out.

With so many subscription-based services these days, you may need to think about dropping a few. To build wealth, you have to cut out the fat. Ask yourself: How much can you afford put toward nonessential expenses?

Step 3: Choose a Budget

There are all types of budget plans out there, but two really seem to have it down. They are the 60% Solution and the 50-20-30 Method.

60% Solution

Developed by Richard Jenkins, this budget model suggests you divvy up your income the following way:

  • 60% of your income goes toward your essential expenses.
  • 10% goes toward long-term savings goals, such as a down payment.
  • 10% goes toward short-term savings goals, such as Christmas, birthdays, and vacations.
  • 10% goes toward your retirement.
  • 10% goes toward fun expenses, such as restaurants, dates, and new gadgets.

It’s methodical yet simple, which is why so many people like it.

50/20/30

Developed by Elizabeth Warren, this budget puts 50% of your net income toward your essential expenses, 20% toward savings and paying off your debt, and 30% toward your wants and desires.

The great thing about this budget is that it takes a lot of the thinking out of budgeting. However, because 30% of your net income goes toward “wants,” you need to be mindful of how you’re spending breaks down. For example, if you buy something you want while grocery shopping, consider ringing it up as a separate purchase to help you keep track of your nonessential purchases.

Step 4: Automate Your Budget

To kick your savings practice into overdrive, you need to automate everything as much as you can. Set up any bill you can for automatic payment and do the same with your savings and retirement accounts. Take all thinking out of the equation. The less you have to think about, the more you’ll save. Many banks offer automatic services, but if yours doesn’t, there are an abundance of automatic billing apps available for smartphones.

The Most Important Thing You Can Do? Start.

You may want to keep reading blogs about how to make a budget, but there’s no need. The greatest secret to success is just starting. Stop planning, and jump in.

Read more: Too Much Credit Card Debt? Expert Tips for Paying It Off

Join our mailing list

Latest

Investor Center

Today we are sharing performance data from the Prosper Portfolio for September 2021. Highlights from the report include: Performance Update In September, approximately 67%...

Credit Management

The consumer finance sector is highly competitive, and consumers often have many options to transfer and repay debt. For example, credit card companies frequently...

Credit Management

For many families, homeownership is an investment for the future. Buying a home is the largest and longest financial commitment most of us will...

Investor Center

Today we are sharing performance data from the Prosper Portfolio for August 2021. Highlights from the report include: Performance Update In August, approximately 67%...

Credit Management

Today, we are excited to announce the release of our new eBook, Your Ultimate Guide to Debt Consolidation, which is now available to download...

Home Renovations

Home renovation can be a challenging process, but financing your renovation doesn’t have to be. There are many ways to fund your home improvements,...

You May Also Like

Credit Management

Unemployed and looking for ways to borrow money? We’ll reveal what options you have when it comes to accessing emergency loans with no job.

Best Practices

Even before COVID, expensive healthcare costs had many Americans wondering what happens if you don’t pay medical bills. If you’re struggling with medical bill...

Financial Literacy

Financial literacy is the know-how to manage your money and plan for your financial future. If you’re not entirely comfortable with money or aren’t...

Finance for Homeowners

Taking out a HELOC to pay off your mortgage is a common practice among many homeowners today. Read more to find out the pros...

© 2005-2021 Prosper Funding LLC. All rights reserved.