Whether you're just getting by, or making more than enough, managing your money incorrectly will hurt you. But smart budgeting and money management will help you save, and prevent overspending. So learn to budget! It isn't hard; it only requires planning and dedication.
List your expenses, and categorize them. You can choose to separate them into two categories by providing a list of fixed items and variable items; or you can go a step further and list three categories – fixed, semi-fixed and variable. Fixed expenses stay the same from one month to the next, and are essential. Examples include rent or mortgage, health insurance and car payments. Semi-fixed expenses are essential expenses that vary in amount each month, and include items such as fuel and groceries. Variable items are items such as entertainment, and any extra money you may have left over. These items are not necessities and can easily be modified, or eliminated, if necessary.
Take your categories a step further. Divide them subcategories, such as insurance, car, education, debt, utilities and entertainment. This gives you a detailed picture of how much money is going in which direction. For the insurance category, you list car insurance, renter’s or homeowner’s insurance, life insurance and health insurance. For the car category, list your car payment, your cost of fuel and any maintenance costs. Debt includes credit card bills and loans; utilities include electric, water and cable; and entertainment includes dining out, going to the movies and other recreational activities.
Look at your expenses and determine if you're making more than you're spending, or spending more than you're making. Ideally, you want to keep your necessities to 60 percent of your income. This allows the other 40 percent to be applied towards saving, retirement, debt repayment, emergencies and recreational money.
If you're spending more than you're making, start trimming. Reduce unnecessary items and see where you are with each reduction. Depending on how far you are from your goal, you may need to begin eliminating items. If you've eliminated all your recreational activities and are still not where you need to be, look at your household expenses and see what you and your family can do without.
After you've successfully reviewed your financial situation, and have made the necessary adjustments, it's vital to stick to the plan. Writing everything down is only the first step. Review your budget and plans every month, and make adjustments as needed.
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