What's a budget and why do I need one?
A budget helps you own your money, instead of your money owning you
Starting your budget
- It's hard to start a budget if you do not already know what you spend. This is the trickiest part but is not difficult.
- Carry a little notebook and write down your expenses every day for a month. Or, keep ALL of your receipts and write them down EVERY NIGHT when you get home. Do whatever is going to work for you. Try not to spend more or less than usual: sometimes writing it down makes it obvious where money gets 'lost' but be honest and spend as you normally do: just keep track.
- Make some categories for expenses: rent, food, gas or transport, insurance (for car and/or health), clothing, entertainment, snacks. Organize your expenses so that you have a list of all expenses for the month: one total for food, one total for entertainment, etc. This might be faster if you do categories every day or every week: less adding!
- Add it all up. That is how much you spend in a month and how you spend it. You are now on the way to owning your money, instead of your money owning you!
Using your budget
- Add, change, delete categories as you want. You are in the driver's seat.
- Keep track of expenses as you did before, and keep adding them up. You will see a pattern over the next few months. Use these totals as targets for spending (assuming you are not running in the red!)
- If you find you spend a lot of money (especially if it is not necessary stuff), you will have to prioritize how you spend. Spending less in one area means you will have more to spend in another. Figure out what is most important to you and what is less important: cut from the less important areas.
- If you are always spending more than you have, you are in debt! You will have to make tougher choices about how to spend your money, because cutting in one spot does NOT mean you can add to another. You might need help.
- You will find that you spend money that does not neatly fit into a category, or that you spend a lot in one of those areas (like CDs?) and so it deserves its very own category. It's your budget-make it how you want!
- You might find you try to 'hide' certain expenses within a more 'acceptable' category. (Chocolate is a snack not a food, and it sure is not rent!) As long as you are aware of what you are doing it's all cool.