Budget. The word sounds scarier than it really is. If anything, a budget can be your best friend when it comes to your finances. I cannot count how many times I’ve heard people complain about making decent money but never having any. Contrary to popular belief your money simply does not just disappear. If you have no clue what it has been spent on, then read on.
The first step of creating a successful budget is to look at your past spending history. Start out by buying yourself a little notebook. Every time you make a purchase, no matter how big or small, make an entry. You can be as vague or detailed as you like.
For example, you can write: Grocery Store-$15.00 or Fruit, Milk, Eggs, Candy Bar, Magazine-$15.00. Once you have logged in three months worth of spending, it’s time to come up with an average for each category. Your categories should include at least these basics: Groceries, Gas, Household, Clothing, Gifts, Entertainment, & Dining Out. Of course you can always elaborate if you wish, but why make it any harder on you?
Next you will want to list all sources of income. If your income varies month to month you can always go off of the average amount. After you’ve totalled up your monthly wages, you will need to write a list of your fixed expenses.
Fixed expenses include things like utilities that are to be paid each month. If you have subscriptions or other things of this kind that only occur several times a year (or maybe just once) then you need to divide that amount by twelve months to come up with your monthly figures. After you have done these two things, then it all comes down to simply subtracting your fixed expenses from your income. What is leftover is your spending cash as well as money to be saved.
Now say that you make $3000/month and your fixed expenses equal $2000/month-this leaves you with $1000 a month to budget for the rest of your expenses. Most people swear by paying themselves first before divvying up their money between their other expenses. The amount you save is up to you, many experts recommend trying to save at least 10% of your income and building up an emergency fund worth at least three months worth of expenses. So out of that $1000 you would end up saving $100/month.
But don’t just let that money sit in your checking account earning zero interest or even in your bank’s savings account earning minimal interest. Invest this money into an online savings account such as ING Direct. You get a much better interest rate and your money is harder to get to as you must wait a week after depositing your money before you are allowed to touch it and depending on how fast your bank issues deposits it can take a few days to recieve your cash. Because of this, however, I do recommend leaving a safety net of $1000 in an easy access account, in case you need the money right away.
After having set that $100 aside you will find yourself left with $900/month for your living expenses. Look at your totals from your log and see how it compares to this number. If you find that you are in the negative then you will have to decide where you are able to cut back. Even doing something as simple as brewing your own coffee could end up saving you at least $20/month.
Don’t be disappointed if you are unable to stick to your budget for the first few months, as it will take some getting used to. However, once you create a budget, you will be able to ease your mind of worry and feel a sense of pride as you now will know exactly where each penny is spent.