You work hard for your money but there never seems to be enough of it. The month begins and you have the best intentions, but then it’s over and there’s nothing left to put toward your goals, like buying a house or starting a family. So while making and following a budget is the last way most people want to spend their time, it can be your best friend when it comes to helping you get the things you want in life.
Begin the process by setting your financial goals. If you have a goal to pay down a debt or save for a wedding, make note of that. If you’d like to give more to charity or spend less on eating out, make a note of those things too. Knowing what your goals are in advance will make the budgeting process more effective.
Take stock of where you are now by gathering your pay statements, check registers and credit card statements for the last several months and see what money is coming in and where it is going. Assign a category to every expense. For categories, include common things like housing, transportation and food. Also include categories specific to your situation, like student loan payments or hobby expenses. This step will be time-consuming, but learning where your money is going is also very enlightening.
Assign numbers to the budget categories you identified. Use an average of the actual spending amounts from the past few months as a starting point and then adjust them as you feel your circumstances warrant. For example, if you've been spending too much on entertainment, you may want to reduce the budgeted amount in that category going forward. Make sure to include room in your budget for paying down debt or saving for goals. The total amount of money going out, including savings and debt repayment, should equal the income you have coming in.
Track your spending in each category as the month progresses. You can use something as simple as a spiral notebook or more complex tools like a computerized spreadsheet or financial software. The important thing is to track every dollar as you spend it.
Compare your actual spending against your budgeted numbers. If there are expense categories you forgot to account for, make a note to add them in future months. If you overspent in certain categories, continue to make changes to your spending to correct that. If you have money left over in other categories, decide if you need to reduce the budgeted amount or carry the money over for future months.
Continue to monitor and tweak your budget. As the months roll by, you will find that you need to adjust your numbers less and less, but you still may need to make changes as circumstances dictate. A new savings goal or a new expense that regularly crops up are both times where your budget will need to be changed. But all in all, your new budget process should help you make the most of your money and meet your financial goals.
Items you will need
- Bank statements
- Credit card statements
- Check registers
- Pay statements
- Notebook or spreadsheet software
- Give yourself time to refine your budget. The first few months are likely to be messy, but after a few months the numbers should be more on track.
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