Many people have heard about budgets but don’t really know what to do to set one up, let alone use it. With that in mind we’ve put together a simple plan that will enable the layperson to do just that and have a budget that they can use to track their monthly income and expenses, lower the expenses where needed (or possible), and save more money. It’s relatively easy to do and should only take about 30 to 60 minutes. Enjoy!
- Gather up all of your bills and receipts for the month and add them up. (It’s easy but may take a little time.) The more precise approximation of your total expenses the better.
- Do the same for your monthly income. Include your paychecks, interest income, dividend income and any other income that you get regularly, no matter the source.
- Make a list of all your monthly expenses using your bills and receipts. Be as thorough as possible and remember to include any cash you take out of the ATM.
- Categorize your expenses as ‘fixed’ and ‘variable’. Fixed are those that stay the same month to month (car payment, mortgage, utility bills) and variable are just that, variable, like lunches and new underwear.
- Total both your income and your expenses. If you end up with a positive number you make more than you spend (a good thing) and if you have a negative number you spend more than you make (a situation that needs to change).
- Change your spending habits to cut down on expenses where possible. Lunches out, your hobby, clothing, sports equipment and all of the variable expenses should be analyzed to see if they can be lowered.
- Review your new budget on a monthly basis to make sure your spending is kept reasonable and also to lower the ones that you can.
That’s essentially it. The goal here is to have something that you can use to;
- See what you are spending every month.
- See where you can cut back on said spending.
- Use the money from those cut-backs to fund your savings, pay down debt or if possible make investments.
A budget is simply a tool to keep your financial house in order. If you have one you will be able to save more, invest more and will have more when you reach retirement. Heck, you’ll just have more for a rainy day or an emergency too, which should lower your anxiety and help you sleep better at night. So start using a budget, like we showed you, and you should see a positive change in your financial status sometime soon. Good luck.