Unless you budget your money, you’re practically inviting unnecessary debt into your life and making it impossible to save. These steps will help you figure out how to make a budget so you can control your spending accordingly.
1. Determine your overall income. Are you on a fixed salary where you know for certain how much you’re taking home each week? Are you a freelancer whose salary varies each month? Having a rough idea of how much money you can expect to earn is key in creating a successful budget.
2. Identify how you’re spending money. What are the bills that you have to pay every month? Do you go out to dinner with friends every Friday night or go to the movies once a week? Looking at where your money is going will give you a better handle on tracking it.
3. Add up the amounts of your regular expenses and subtract it from your paycheck amount. Do you get a negative number? If so, you are living way beyond your means. If you have money leftover, split that money up into a few groups:
- Flex money. This should be about 10-20% of your regular expenses. It’s for if something you need to pay for turns out to be slightly more expensive than you anticipated. This can happen with utilities, if gas prices suddenly go up or you get a flat tire.
- Savings. Ideally, this should be about 30% of your paycheck, although even 10% (if you do it consistently) is pretty good. Build up enough savings for an emergency fund (about 4-6 times your regular expenses), then start saving money to invest.
- Spending money. This is whatever is leftover after you subtract flex money and savings money. It’s what you’d spend on things like clothes, eating out or other fun activities. If you start to cry when you realize how little fun money you have, then you need to learn How to Reduce Your Expenses.
Creating Your Budget
1. Set budget and financial goals. These should be short-term and long-term. Short-term goals include not spending more than a certain amount of money every month or saving a few hundred dollars every month. Long-term goals include being able to put down a mortgage payment on a home or a car. Make sure you have something to be working towards to help stay on track with your budget.
Maintaining Your Budget
1. Don’t go over budget. It sounds fairly obvious, but it’s easy to go over budget even when you have one in place. Be mindful of your spending habits and what your money is going towards.
2. Keep a journal. In the early stages of keeping a budget, it might be helpful to keep a daily journal of your spending habits. Write out what you spend money on each day. Keep an eye for repeated purchases which might be easily avoidable, like a trip to Starbucks for coffee every morning.
1. Luxuries vs. Necessities. Determine what the have-to’s in your budget are versus the want-to’s. Make the necessities your highest priority in the budget and if there’s money left over, indulge in things like going out or shopping.
- Regular Expenses:
- Rent 400
- Cell phone $75
- Food $200**
- Total - $675
- $1500 – $675 (regular expenses) = $825
- $825 – $82.5 (flex money, 10% of regular expenses) = $742.00
- $742 – $300 (savings, 20% of paycheck) = $442
- The $442 is money you can do whatever you want with until your next paycheck