3 Things You Need to Know to Start Budgeting in 2023
If you’re hoping to get a handle on your finances in 2023, the first thing you need to do is start budgeting. Creating a budget is a way to create a spending plan for your money by taking into account your income and expenses. It gives you a clearer picture of where your money is going and helps you get in the habit of being proactive about your finances. It gives you a way to establish spending limits to help you use your money responsibly. Here are 3 things you need to know to start budgeting in 2023.
- Know Your Monthly Income
To start budgeting, you need to know how much money is coming in. Add up all sources of income, and use the amount you bring home, not the amount before taxes. If you receive child support or alimony or if you make money from a side gig, include that income too. You’ll need to deduct taxes owed on your side gig as well. If the amount of income you receive each month fluctuations, figure out the average amount you typically bring home to avoid underpaying your taxes.
- Know Your Monthly Expenses
Next you need to take account of your monthly expenses. Some things are a predictable amount every month, such as your rent or mortgage, car payment, or personal loan payment. Other expenses may vary from month to month, such as your groceries, gasoline, and utilities. Record everything you spend money using a spreadsheet or budgeting software. Reviewing credit card statements and bank statements can also help you identify where you’re spending money. Tracking your expenses makes you more aware of where your money is going, and whether there are some spending habits that need to change.
- Know the Difference Between Your Income and Your Expenses
To get a clear picture of your overall finances, you also have to factor in periodic expenses like holiday shopping or annual vacations. When you compare your income to your expenses, you end up with either a surplus or a deficit. If you have a surplus, get in the habit of depositing some of the money that isn’t needed for expenses into a savings account, and pay more than the amount due on credit cards and loans. If you have a deficit, look for ways to cut back on spending, such as cancelling subscriptions or cutting back on eating out.
If you don’t have a budget, you may end up spending money you don’t have. This behavior often means overreliance on credit cards, which can hurt your credit score if your credit utilization is too high or if you forget to make payments on time. Being proactive about your finances includes taking care of your credit by always paying your bills on time and limiting your credit utilization. Review your credit reports to make sure there are no errors. If you find any errors, Dovly can help. Dovly is an AI credit engine that can help you dispute any errors you find on your credit report. Try it risk-free with our free membership tier. Get in touch with Dovly today.
