"Budgeting is hard. I can't live by a budget. They are too constricting." You may think that budgets are one of the worst parts of living in an adult world. But budgeting is not hard, and they don't have to be restrictive. Budgeting offers a sound means to know where your money is going and to help you create financial goals that will carry you through the ups-and-downs in life.
Preparing Your Budget
Track your expenses for one month and record where your money goes.
List all periodic expenses such as doctor visit co-pays, vehicle registration, homeowner association dues or property taxes, vehicle insurance (if paid quarterly or every six months) and gym memberships.
Evaluate your spending and decide what is most important for your lifestyle. Where do you spend money without thinking? Do you stop and grab a cup of coffee from a high-price retailer every morning before work? At an average of $5 a cup, that comes to just over $100 a month or $1,275 a year.
Building Your Budget
Structure your budget in a way that works for you. Budgeting according to your pay schedule is often easier than using a standard month-long system. You can use websites such as youneedabudget.com or mint.com (see Resources) to track expenses and build a household budget.
Build your budget. Account for your net income (the amount you bring home after taxes), savings and investments, necessary expenses (housing, utilities, vehicles, groceries and debt payments), and discretionary items such as dining out, movies and spending allowances.
Do the math. Subtract your anticipated expenses from your net income.
Evaluate the results. Is the number positive or negative?
If your number is negative, rework your budget to find where you can cut costs. Typically budgets bust in the discretionary category. Did you budget too much as a spending allowance? Do you need to eat out three days a week or can you cut back to once a week to free up additional funds?
Is the number positive? Take that amount and add it into another area of your budget, such as savings. You could also put it toward a longer-term savings goal, such as a down payment for a home.
- It can take a few tries to work out a budget that works best for your lifestyle. Keep trying.
- Jupiterimages/Photos.com/Getty Images