Have you put off creating a personal budget? You’re not alone.
Despite the fact that a budget can help them avoid financial difficulties and build a strong financial future, only one-third of American families have a budget in place.
Why? The main reason is that developing a budget can seem like a complicated task. However, you can set up a budget that works for your family in just a few easy steps.A budget can help you cover your basic needs, manage your debt, plan for the future and prevent you from over-spending. Sounds good, right? So let’s get started.
“A budget is telling your money where to go instead of
wondering where it went.” -Dave Ramsey
Gather The Data
The first step is to track your regular expenses over a period of at least one month. These expenses include your monthly bills, including your rent or mortgage, utilities, insurance, car or school loans and credit card payments. They also include your more variable expenses such as food, clothing and entertainment.
Next, you need to see how much income you have each month to cover these expenses. If you have an hourly job or an irregular income, it is a good idea to use the lowest amount of money you could earn in a given month.
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Do The Math
To do this mathematical equation, you can use good old fashioned pencil and paper or you can enter the figures in a spreadsheet software program such as Microsoft Excel, Quicken, Mint or Moneydance. There are quite a few programs that help you calculate your monthly expenses for free, you just have to find the one that works for you.
When you subtract your expenses from your income, how much money is left? It is not uncommon for many Americans today to have little or no money left over each month. It may be time for you to examine your priorities and to make some adjustments in your spending. In other words, decide which expenses are the most important and which ones you can cut back on.
Be careful not to be too harsh on yourself. Many first-time budget planners fail by being too strict with their budgets. While you may need to cut back on eating out, for example, it is okay to budget in an occasional lunch or dinner out.
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Depending on where you are in life, you may want to add extra line items to your budget. Perhaps you want to save for a new car or home, for your child’s education or for your retirement. Since life happens, you may want to have a savings account for the unexpected, including anything from home repairs to an emergency medical condition.
Practice Makes Perfect
Now that you have a preliminary budget set up, you need to follow it. It takes some discipline at first, but you will find that it gets easier as time goes on. There are going to be ups and downs. Some months you’re going to come in under budget and others you might go over. The key is to not be too hard on yourself. Sticking to a budget takes practice and diligence, if you continuously ask yourself “do I really need this?” you’re on your way to mastering your budget.
Here are a few other tips:
- Try automating your bill paying to make sure you are paying your bills on time.
- You can automate payments into a savings account each month as well, especially if you have had trouble putting some money aside in the past.
- Plan in some small rewards for yourself for staying on budget. It could be anything from preparing a special meal for your family to placing a few extra dollars in a vacation fund.
You will see that by following a budget, you will gain financial freedom. Not only will it help get you out of the overspending rut and from living from paycheck to paycheck, but it will help you gain the confidence to make and reach your long-term financial goals as well.
Related Reading: 4 common budget personalities: which one are you?
Still In The Red?
If after a few months, you’re still struggling to come in under budget, it might be time to consider additional income. There are quite a few ways to earn money on the side, check out our article on jobs you can do from home.
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