How to Start a Budget in 4 Simple Steps
Write down everything you spend money on. Keep all of your receipts and bill payments for an accurate log. When I say everything I mean EVERYTHING. The $1 Diet Coke from McDonalds-WRITE IT DOWN, the treat for the kids in the grocery store check out line-WRITE IT DOWN, the pedicure splurge that you only get occasionally-WRITE IT DOWN. This will give you a guideline as you make your budget.
Write down all sources of income. Look at your net income or the amount you are actually taking home after taxes and insurance or other deductions from your paycheck. Unless you want to include taxes and the deductions as expenses in your budget, you need to know the amount you have to start with. So look at your bank statement/online banking check deposit or the pay stub from your employer. Look for the amount you actually put into your bank account when your check is deposited.
Set a REALISTIC budget. Look for places where you can cut or where you are spending more than you thought from your log in step one but don’t cut everything. If you can’t live without your Diet Coke make sure it is in the budget. If a monthly pedicure is a must make sure you include that. The key to your budget is that it has to work for you. Almost always you’ll find places you know you could spend less so use those areas to reallocate money to places you really don’t want to cut. Make sure you include savings into your budget. Generally you want to have at least three areas of savings. Retirement and other long term goals. This includes 401k, kid’s college savings, etc. The second area is a 6 month emergency fund. Try to put a little aside every month until you have a reserve that would cover all of your bills for six months. The last is an immediate savings. This is the fund you tap into if the refrigerator or washing machine goes out, the AC needs to be repaired, or your car needs repair. Believe me, life is much less stressful when you have this type of savings and aren’t looking to credit cards to bail you out of an unexpected jam. The fourth type of savings isn’t a necessity but sure it nice to have and that is your splurge fund. This is where I like to keep Birthday or Christmas money I receive or the little extra I can squeeze into savings. Even if your savings amounts seem really small still do it. You will be surprised how it adds up over time and the habit will make it easier to save as your income increases.
Try it out for a month. Again WRITE EVERYTHING DOWN! See how you stack up to what you planned. If you take a look at where you’re at compared to your budget at least once a week you’ll be more likely to stay on track. If you have areas that you aren’t near your budget then reallocate to make it work better for you the next month. The key to continue on a budget is to make it work for you.
Budgets can seem restrictive but after having a budget you’ll find it actually gives you control over your money and lets you decide purposefully where you want to spend it.