How to Create a Budget and Actually Commit to It
Creating a budget is essential to an organized financial life. Don’t where to start? Follow these easy steps to take control of your money and feel less stress as the first of each month approaches.
1. Set a goal
Why are you creating a budget? Perhaps you feel tight on money for emergencies. Maybe you are saving for a big investment. Or it may be you are working toward retirement. No matter the reason, estimate how much you need to save at the end of each month. Write down that number and what it is for. As you develop your budget you can be open to adjusting it — but for now, consider this your goal.
2. Analyze your current spending
Tabulate your monthly income and expenses. Your income is your take-home pay after tax, and your expenses are all the bills and transactions you rack up in a month. Subtract your expenses from your income. If the number is less than zero, you are spending more than you earn, and adjusting your financial habits is vital. If it is above zero, consider if it is enough to reach your savings goal.
3. Make budget cuts
The easiest place to make cuts is in your variable expenses. These are expenses that fluctuate each month, like gas and groceries, as opposed to fixed expenses like rent and insurance. Also included are extra expenditures like dining and entertainment. You don’t have to cut these things out entirely, but try to put a cap on how much you will spend on non-essentials each month. You may even want to carry your variables budget in cash to prevent overspending with a credit or debit card. Once the cash is gone, you’ll know you’ve reached your limit for the month and will no longer have money for these items.
4. Track your spending
Throughout the month, monitor your activity with hard copies (receipts, bills, statements, etc.) and online apps (e.g. mobile banking or Mint). The internet has made it easier than ever to quickly see where your money is going. An itemized list of expenses may keep you honest about your spending during the month, and it will certainly help you review your budget.
5. Revise your budget
At the end of the month, compare your spending to your budgetary goals. Did you stick to the allotted amounts? How much is left over? You may discover your spending goals were too restrictive or your savings goals too unrealistic. And that’s fine! Budgeting is a process of trial and error. It requires hard work, but taking small steps makes it less intimidating. Before long, it will be second nature.