"Where, oh where, has all my money gone?" If you find yourself asking that question then you need to create a budget. The budgeting process doesn't have to be complicated or time consuming. A budget doesn't wrangle you or your finances into a straight jacket. It's a guide on how much you spend and on what you spend it--based on your current obligations and expenses. When you've squirreled away enough money to cover three to six months of expenses, consider paying down your credit cards and starting an investment program.
Write down what you spend in cash every day in the diary. You could use a flip pad or even a day minder or calendar. Note the amount and what it was for. Be specific. Don't note you withdrew $60 from the ATM and leave it at that. Account for how you spend every one of those dollars. Take the diary with you wherever you go for the next four weeks.
Go through your checkbook or online banking portal and note what you spent by category. Group like items together. For example, group telephone, cell phone, Internet access and cable TV together as communications. Group utilities such as electricity, gas, water and garbage pickup together. This is a simple budget so don't get tangled up in reams of detail. Make sure rent, mortgages, car payments and student loan payments are included.
Go through your credit card statements and do the same thing. Group expenditures by categories such as food, travel and entertainment.
Review the past year and make notes of those items that you pay several times a year but not monthly. That could include vacations, car insurance, car repairs, dental, doctor and veterinarian bills.
Draw three columns on a sheet of paper. Title the columns "Daily," "Monthly" and "Other." Transfer the amounts from your diary to the daily column and sort them into categories. Transfer the monthly amounts from your checkbook and credit card statements. And finally note the expenses you pay several times a year but not every month in the "Other" column.
Sit down. Take a deep breath. Total the columns. Divide the "Other" category by 12 and add it to the first two columns. This is the amount of money you need every month to keep up your current standard of living. Notice that any credit card payments haven't been included yet.
Subtract the monthly total from your monthly income. If you've been using your credit cards to fund the deficit between your income and expenses now is the time to stop. If you have more income than expenses, congratulations. Now add in the credit card payments and see if you still have enough money to cover everything.
Review each expense item and see where you can cut the fluff. Be reasonable and don't approach it as if you were going on a crash diet for your finances and you'll be more successful suggests Suze Orman, author of "The Money Book for the Young, Fabulous & Broke." Your goal is to cut back enough so you're living within your means, can pay all your bills and have at least a 10 percent surplus. That surplus goes to savings first. When you have three months living expenses squirreled away start splitting the surplus between paying down credit card balances and beginning an investment program.
- "The Money Book for the Young, Fabulous & Broke"; Suze Orman; 2007
- K State Research and Extension News: Saving, Spending Tips Help Young Adults Manage Money
- Put the cash you'll need for the week in an envelope. Knowing you only have $X for coffee, magazines, parking and incidentals will keep you from running to the ATM.
- If you overspend in a category, don't beat yourself up. It takes time to get used to staying on a budget, but you'll be glad you did.
Brian Hill is the author of four popular business and finance books: "The Making of a Bestseller," "Inside Secrets to Venture Capital," "Attracting Capital from Angels" and his latest book, published in 2013, "The Pocket Small Business Owner's Guide to Business Plans."