Budgeting has gotten a bad rap. It’s not all about reusing paper towels and stockpiling money under the mattress. It’s definitely not about depriving yourself, as many people believe. Instead, budgeting is all about telling your money where to go so you won’t wonder where it all went. Here’s how to get started.
A Step-by-Step Guide to Budgeting
1. Get your documents in order
Paychecks, bills, emails, bank statements – anything and everything you have that has anything to do with your money. Get it together.
2. Tally up all your income for the month
Look at your paystubs and the profit from your side hustles. If you work a job with an irregular salary, like bartending or seasonal labor, it’s best to gather a few months of wages and average them out.
3. Add up your expenses
Make a list of everything you have spent money on in the past few months. Look over your bank and credit card statements, and don’t leave anything out. Sure, Netflix doesn’t cost much, but it counts; so do those lunches out during the week. Write down all of it and add it up.
4. Do the math
Subtract your expenses from your income. If there are dollars leftover, make that money work for you by paying down debt or saving it toward a specific goal. That could mean putting some toward an emergency fund, a retirement plan, an upcoming vacation, or all of the above. If you have a negative number after subtracting expenses from earnings, you’ll want to adjust your spending to bring that number down.
5. Make adjustments
Some expenses are fixed, like your rent or your car payment. Other outflows are variable, like your take-out habit and your gym membership. If you end up with a deficit, you need to make a change to your variable expenses first. Drop the happy hours, skip the weekly movie trip, and spend less at the grocery store. Ask yourself, “What expenses can be reduced?” or “How can I boost my income so the numbers add up?”
6. Test it out
If you have made every cut you can to your variable expenses and still are struggling, move on to your fixed expenses. Call around to get better rates on your utilities. Consider using public transportation instead of driving to work every day. Perhaps splitting the rent with a roommate would free up some cash. Maybe cable TV can go or cell phone plans and Internet options can be scaled back.
7. Create goals
Once you’ve worked out the kinks and settled into a spending plan that frees up some cash, you need to have a plan. All that extra money is great – but don’t waste it! Create a plan for your money and start saving it. Paying down credit card debt and student loans are great goals, so is planning a vacation or saving for a down payment on a home.
8. Review your progress and stick with it
Life happens, and not everything is going to go according to plan.. However, by keeping an eye on your spending and socking some cash away for a rainy day, you’re going to be prepared. Not every month is going to be perfect and you’re spending may reflect that. Continue to be mindful of keeping track and adjust as needed. If you get a surprise car repair bill, you know that you can shift a little cash from your going out money to cover it.
Final Thoughts on Keeping a Budget
Over time, the boundaries of your budget will be second nature and you won’t need to review the numbers as much. By slowly shifting your behavior to take power over your finances, you’ll be more in control. And from control comes success. Happy budgeting!
