The monthly income you choose as your salary could be based off what you earn on average, or what you'd typically earn in a bad month if you want to build a bigger cushion and reduce the risk of overspending. This means you'll decide on a monthly "salary" to base your budget around and when extra money comes in, save it in case of a bad month later. If your income is variable, one of the best budgeting approaches is to pay yourself a salary. Factor in income from all sources including: Your calendar and past credit card statements will help you make a list of all expenses that crop up throughout the year.īudgeting is about making the best use of income, so you need to know how much money you have coming in.
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In fact, University of Maryland research into budgeting showed the process of creating a budget makes it more likely goals will be achieved because the process of hashing out the numbers creates an emotional investment, enhances motivation, and discourages cheating. While it may seem silly to think about your motivations, psychology plays a big role in how we handle money.
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Common reasons to create a budget include: While budgeting is always a great decision, it's good to define goals before you start the process, since the reasons you're budgeting may impact choices you make during the process.