Budgeting can seem overwhelming if it’s something you have not done before. But there are many good reasons to budget, including having a better idea of your spending habits, knowing how much to save, and paying off debt. Listed below are a few ways to begin budgeting. Money can be a big source of stress; hopefully, these tips help ease that stress just a bit.
- Know your monthly income
Whether you have a salary, guaranteed hours, or a flexible schedule, it is always very important to know the amount of money that hits your bank account every month. Once you have figured out your income, by either averaging pay stubs or adding up your hours every week, you are on the right track to a successful budget.
- Add up your bills
This isn’t about adding up every penny you spend — that comes next. This step is simply adding all those recurring bills. Call them essentials. Once you know how much you must pay out each month, subtract that amount from your monthly income. Whatever is left over we’ll call “extras.”
- Know what you spend
Believe it or not, that daily coffee does add up. If you spend $3.50 five days a week on your venti non-fat vanilla latte, you are spending $70.00 a month. If this is an expense you can afford, by all means caffeinate up. Just remember that everything adds up, and once you have subtracted your monthly essential money from the extras, how much do you have left?
- Are you trying to pay off debt?
Whether you’re trying to pay off a car or that blasted credit card, the only way to do it is by making extra payments. This means going above those essential payments. When you find an extra amount you are comfortable with, don’t stop paying that amount until the debt is paid off. Minimum payments will takes years to pay off, and if the interest rate is too high you may end up paying a lot more than you originally borrowed.
- Do you want to save money?
Once you have your essential money and your extra money figured out, decide if there is anywhere you can cut back on spending. Do you want to get rid of that daily coffee? Maybe cut back on it. Instead of five days a week, buy one three days a week. Find what works for you when it comes to spending cuts. If you want to save money, the best way is to decide how much you want to save every check or every month. Then make that one of the essentials, just as any bill would be. Put this money in a savings account so there is less temptation to spend it. You want this money to sit and collect interest. Pretty soon it will add up, and once you get in the habit of saving on a regular basis, you won’t notice it as a hindrance to your finances
- Document your expenses
It helps to have your essentials and extras in a spread sheet or some format that is easy to see. Having it written out really gives perspective on exactly what you have and makes it easier to manage.
Once the budget is started, and followed on a monthly basis, managing your money becomes simple. Perhaps one of the biggest benefits to budgeting is the chance to save and pay off debt. So whether you’re trying to pay off your car, save to buy your first house, or simply to better plan your spending, setting a budget is the first thing to do.