“Where did all my money go?” If you find yourself asking that question at the end of every month or in the days before your next paycheck, it’s time to get your budget in shape. Don’t have a budget? No problem!It’s easy to get started. Once you’ve got the hang of it, your finances should be easier to manageand you’ll have a better chance of achieving your short- and long-termgoals.
Step 1: Figure Out Your Goals
What are your dreams for the next few months? How aboutthe next few years? Are you planning to further your education, get a new car or buy your first house?Write downthe plans that are the most important to you, along with a realisticguessof how longit will take you to get there. Keep this list handy, we’ll return to itin another step.
Step 2:Calculate Your Income and Expenses
In a budget, your monthly income is the amount you take home in each paycheck (not your total annual salary), aswell as other amountsyou may receive regularly, likefreelance income,investmentdividends, interestandchild support.That’s what you’ve got to spend. Next, add upyour regular monthly expenses. Includethe cost of housing, utilities,childcare,phone and Internet service, food,student loans,insurance,and transportationorcommuting costs, and any other regular bills.Next come the discretionary expenses, or those that are optional or flexible.Your discretionary items includeentertainment, dining out,vacations, hobbies, etc. Don’t forget to anticipate costs that aren’t monthly but pop up regularly, likecar maintenance, home repair and holiday spending.To refresh your memory, review yourbank statements and receipts to identify expenses you may have left out.
Step 3: See What’s Left
Once subtract your monthly expensesfrom your monthly income, it’s time to decide how to spend what’s left.Look back tothe goals you identified in Step 1.Let’s say your income is $3,000a month and your expenses are $2,600. With theremaining $400,you couldsave $100 each month for a new home, anddeposit another $100 in a tax-advantaged retirement savings account. Whatever your choices, your budget can help you take control of your financial future.
If your monthly expenses are more than your monthly income,you’ll needto reviseyour spending habits so you can live within your means.Review your list of discretionary expenses and see if it’s possibleto cut back by, say, eatingout lessor spendingless on vacations or costly hobbies.This type of assessment and spending readjustment can help you enjoy the money you have without worrying about running up debt.
Step 4: Monitor Your Budget
Your income, expenses and spending habits will change over time, so it’s importantto monitor yourbudget.Ask yourself:
- Am I still following it?
- Are there any revisionsneeded based onother changes in my life?
The overall goal is not to worry about everything you spend, but to be aware of how much you have available to spend. That said, as an experiment, consider tracking allyour spending for one week, or even a month. You may be surprisedby what you find andspot some easy ways to cut costs.
Best Practices
Budgeting doesn’t have to feel like a chore. Here are some ways to makebudgeting easier and more effective:
- Make it a team effort by getting the whole family involved.Explain the importance of budgeting and ask for ideas on cost-cutting and other helpful steps.
- Don’t get started on your budget at a time when it’s going to bedifficultto stay disciplined. Begin in January rather thanright beforethe holiday spending seasonor right after a vacation. That way you won’t bediscouraged if you bust your budget in the first month.
- Use the system that’s best for you, whetheron paper orusingbudgeting software.
- Reward yourself for a staying on budgetbyindulging in aninexpensive splurge.
