4 Steps for Setting a Spending Plan
When buying a home, the most important thing to do is look at your income and expenses and see if you can afford a house payment. Developing a budget or spending plan will help you track your money and spend in the best way to achieve your financial goals.
Step 1 – Determine your monthly net income.
This is how much money you bring in after taxes and other deductions. Include all of the money you get each month, like pay from your job, child support, retirement, government assistance, etc.
Step 2 – Calculate your monthly expenses
This is anything you spend money on. Include all the money you pay for rent, utilities, car payments, credit cards, insurance, food, clothing, entertainment, and more. It helps to use actual bills and receipts so you make sure you are using the right numbers.
Step 3 – Subtract your monthly expenses from your income.
The money left over at the end of the month is called discretionary income. You can spend it or save it.
Step 4 – Cutting expenses to start saving money
After looking at your list of monthly expenses, figure out what expenses you can lower to increase your savings. Some ways to lower your monthly expenses include negotiating lower phone or cable bills, paying off debts earlier to save on interest, eating at home more and sticking to a grocery list, buy things used instead of new, and finding free fun activities.