Creating a budget

Creating a Budget

So you want to create a budget, but just not really sure how to get started.  Here is a step by step guide to help you.

  1.  Know where your money is going!  I suggest for the next 30 days try and only use cash and no credit cards.  Get a small notebook that you can carry around or use your notepad on your smartphone to jot down all of your purchases.  If it’s a dollar for a toll you must still write it down.  For this to truly work try not to wait until the end of the day to write them down because you might forget something.  At the end of your 30 day period you must evaluate your spending habits.  Creating a budget will not work if you do not truly know where your money is going.  Take note on the areas where you can cut back.  You might be surprised how much per month you spend on eating out or how much that cup of Starbucks can add up over time.
  2. Organize all of your bills including anything in collections.  If you are going to create a budget you should be including any bad debt. Be aware of when bills are due.
  3. Separate all of your expenses into two categories:
    1. Fixed-anything that is the same amount every month that you know you will be paying. (Rent, mortgage, daycare, cable, medication, etc.)
    2. Variable- anything that fluctuates in cost. (Gas, groceries, entertainment, grooming, wardrobe, etc.)
  4. Now you can get started. You must base your budget on your monthly take home income. Exclude any bonuses or commissions since they are not always guaranteed and can vary.
  5. I like using Excel to keep track of my budget, but a notebook will work just fine.  Since I am paid twice a month, I have each month split into two.  Your budget should look something like this with fixed cost listed first (This is just an example for you to get an idea so make sure you have all categories listed in your actual budget….entertainment, hair, clothes, car repairs, etc):
    Bills Monthly Cost Jan1 Jan15 Feb1 Feb15        
    Rent 800  800
    Car Payment 100  100
    Student Loan 300  300
    Insurance 75  75
    Daycare 500  250  250
    Savings 100  50  50
    Groceries 90  45  45
    Gas  200  100  100
    Miscellaneous  60  60
  6. Don’t mix up your money.  You can try the two bank account system; one with your bill money and the other with your variable spending like groceries, gas etc.  You don’t want to accidentally spend your bill money.  If you do not have a bank account you can try using the envelope system by separating your money into different envelopes. Or you can use a combination of both.  I have found the two bank account system works best for me since I pay all my bills online each month anyway.  Most banks these days have a bill pay option.
  7. Get into the habit of paying your bills around the same time each month.  For example anything that is due between the 1st-15th of the month is paid on the 1st.  Anything after the 15th is paid on the 15th.  Paying early is much better than paying late.
  8. Stay in control of your money and don’t let your money control you.

So there you have it.  Creating a budget is the easy part; sticking to it is an entire different story.  Don’t get discouraged if you feel like you are failing in the beginning; it takes 21 days of doing something on a consistent bases to make it a habit.  You only fail when you stop trying. The key to success in budgeting is to plan ahead.

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