Serious young woman sit at desk manage budget calculate on machine pay bills online on laptop.

How to Build Your Budget in 2022

You can take a step towards financial freedom when learn how to build your budget in 2022

If you’ve never set out a formal budget for your day-to-day expenses, the best time to start is now. With the cost of living rising for many, it’s more important than ever to plan ahead and get your finances in order.

Being strategic with your money can improve your financial health now and in the future. It can help you reduce expenses, save more money, and achieve more financial stability. Luckily, there are lots of ways to improve your budget. 

Assess your current spending 

The first step to building a budget that works is to take stock of where you’re at now. What’s your spending like? Do you splurge on luxury goods or are you frugal? 

Many people think they’re pretty frugal but would be surprised to see how much they spend on little expenses that add up. 

The best way to know for certain is to look at the past few months of bank statements. Categorize your spending either manually or with an app and look at how much you’re spending on:

  • Essential payments: Rent/mortgage, insurance, utility bills, debt repayments, etc.
  • Fun expenses: Drinks/meals out, movie trips, vacations, clothes, or takeout coffee, alcohol or going out.
  • Savings: Money put away for retirement, home down payment, other long or short-term goals.

Cut where you need to

The next step after figuring out what your spending really looks like is to see where you can make cuts. You might decide that there’s not much you can cut which is fine. But if you want to save money, look for areas to trim your expenses.

The easiest way is to address the fun expenses category. These are all things that you don’t need but may want. However, to create a budget that you actually stick to, avoid cutting all expenses here. Spending on things that make you happy is an important part of your budget – it’s your hard-earned money, after all. 

Instead, find those expenses that are both unnecessary and don’t make you happier. 

You might decide that you can’t live without your favorite takeout coffee each morning but you could cut down on buying new clothes each month. Find out what you can live without realistically and make cuts there. 

In the essential payments category, it might seem like there are little savings to be made here. But in some cases, you can find cheaper insurance or negotiate your phone bill to reduce your expenses. 

Attack your debt strategically

Most Americans live with some form of debt, whether it’s car payments, a mortgage, or student debt. 

Reducing your debt should always be a huge part of your financial plan because the longer you take to pay it off, the more it costs in interest.

Take inventory of all your debts and write them down in order of smallest to largest. Some people like to focus on the smallest or largest debt first and work their way through one by one. Others like to work on the highest-interest debt first.

Whichever you do, consider how you can make extra repayments on one or more of your debts to clear it faster. 

For example, you might have a mortgage, medical debt and a credit card. If you prioritize your credit card and clear that faster, you save on high-interest rates and also free up more cash to clear your other debts. 

These approaches are called the snowball or avalanche methods which are popular ways of clearing debt more efficiently. 

Build a savings plan

If you don’t already have a savings plan in place, spend some time outlining your top money goals. It could be to save for a house down payment, to save for retirement, or save for your dream vacation to Rome. 

Whatever it is, the best way to achieve your goals is to get specific. 

  • Decide how much you need to save
  • Set a deadline
  • Work out how much you need to save each month to hit that goal
  • Move money into your savings pot as soon as you get your paycheck

For example, if you want to save $1,000 for your vacation and want to travel in a year, you would need to divide $1,000 by 12 months. This would mean saving around $83 a month.

If you haven’t already, consider splitting your savings into different pots or accounts. You might even want to set up automatic transfers which move money into your savings pot as soon as you get your paycheck. That way, it’s impossible to forget. 

Building a budget doesn’t have to be daunting. Tackling just one of the above points, for now, is a great start to developing a more efficient budget. Decide which is your priority, for example, clearing unmanageable debt, and work through it one step at a time. 

If you’ve built your budget and find you’re still short on cash, apply today for a short-term loan from Jora Credit.

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