Creating and sticking to a budget is an essential financial skill. It helps you spend less than you earn, save for future goals, and avoid going into debt.
Begin by reviewing your past bank and credit card statements to identify and categorize all your expenses. Start with essential categories like rent or mortgage payments, utilities, and insurance premiums.
Make a List of Your Expenses
A budget is a powerful tool to help you take control of your finances and reach your financial goals. But like anything else, it requires a little work to get up and running.
The first step is to make a list of your expenses, including fixed and variable costs. Fixed expenses are those that remain the same each month, such as rent or a mortgage, car payments and insurance. Variable expenses include food (both grocery and restaurant purchases), gas and entertainment. To make this list, you can use a special app or budgeting software, your bank or credit card statements or simply pen and paper.
Don’t forget to add in any one-time or semi-annual expenses, such as a membership fee or taxes. Also, be sure to include monthly debt repayment amounts. Once you’ve made this list, subtract your total expenses from your total income to determine your savings potential. You may be surprised to learn that you can save more than you thought!
Make a List of Your Needs
A budget is a key tool to help you pay bills, tackle debt and save money. It is a tool that can be useful for everyone, no matter their income or lifestyle.
Start by listing your fixed expenses, which are recurring monthly costs such as rent or mortgage, utilities and car payments. Then, list your variable expenses, which may vary from month to month such as food and entertainment. It can be helpful to separate these expenses into “needs” and “wants.”
Ideally, your needs should always take precedence over your wants. However, it is important to practice moderation. Be sure to evaluate your needs and desires regularly, particularly as your financial situation changes. Doing so will prevent you from slipping back into bad habits and letting your finances get out of control.
Make a List of Your Goals
A budget may sound like a six-letter dirty word, but it doesn’t have to be. It’s one of the most critical financial tools you can have and can help you reach your long-term financial goals.
The first step is to find out how much money you make each month. This includes your take-home pay (or net) from your job, tips and other income sources. If you’re unsure of what to include, review your checkbook register, credit card statements, savings accounts and any other sources of income.
Next, list your expenses. Include both the non-negotiable essentials, such as rent or mortgage payments, utilities and food, as well as discretionary spending, like entertainment. Be sure to incorporate your financial goals into your budget, such as building an emergency fund and saving for retirement. This will give you a reason to stick with your budget and hold yourself accountable. It’s also important to be flexible and allow for changes over time as your life and income evolve.
Make a List of Your Rewards
It can be easy to get discouraged by a bad month when budgeting, but the key is to keep at it. Start by using resources like a personal finance software program (like EveryDollar or YNAB) to track your expenses. There are also free apps that connect directly to your bank accounts that will give you analytics on your spending habits.
Once you have a firm grasp on your actual spending, it’s time to create your budget. Then, make it stick by sticking to the same system each month. You may need to tweak it as you go along, and that’s okay. It takes time to reform bad money habits, but the more you practice, the easier it will be. Just be sure to adjust for new expenses and changes in income when they occur. This will help you stay on track to meet your financial goals for real. You can do it! Just take it one day at a time.