When you want to get serious about saving for retirement you need to start with a budget. This is going to help you get an idea of where you are currently. The problem is for most people creating a budget ranks as a coin toss with getting a root canal. Here are some easy steps to make the budget creating process a little less painful.
1. Calculate income – This is a very simple question. How much money comes into your household on a monthly basis? Get your paystubs together and add the totals. Then divide the total by the number of paystubs. This will give you an average monthly income number. Do not forget to add any interest or outside income if available.
2. What are your necessary fixed monthly expenses – Look at your checkbook, your bank statements, and credit card statements and see where your money is going. Get copies of all your bills and see if there are any charges that you were not aware of. This can be an easy way to cut some costs. Find out if your utilities providers will allow level billing. This will make budgeting easier to plan.
3. Examine variable necessary expenses – Things like food, gas, and clothing are examples. These are items that are not the same each month. They are things that we usually purchase as we need or even want.
4. What is the net result – This is where we take income minus expenses and that will leave our disposable income. If you already allocated savings and retirement funding then you are ahead of the game. If you did not then you need to reexamine your priorities. You should be paying yourself first. You control what you spend so if the disposable income does not allow for savings and retirement funding then you have two choices. First cut expenses or second increase income. Increasing income may mean getting a second job if the opportunity does not exist to increase income at your first job. Reducing expenses may mean making some tough choices.
5. Allocate available resources – Determine how much you should allocate for the variable expenses. Set an amount aside monthly to cover these expenses even in months where they do not occur. This can mean putting the money aside in an envelope or having a savings account that you save money in. Whatever works you need to have a method. The main thing is to have money prepared so that you do not have to rely on credit cards.
6. Stay the course – Stick to your budget. Revisit the budget on a regular basis. Do not be afraid to adjust. This is an continual process. It will become easier as you go.
How well this process works is up to you. If you are serious about creating a budget and getting our expenses in line so that you can fund your retirement you will be successful. If you are more interested in the right now then it will not work out so well for you.