How to Create a Workable Budget
One of the most effective tools for managing your personal finances is also the most overlooked. It’s the personal budget, which simply measures the amount of money coming in and the amount going out.
At Take Charge America, we have found that individuals who maintain regular budgets are more likely to recognize and reverse bad spending habits than those who don’t. In fact, it’s not uncommon for first-time budgeters to save hundreds of dollars within the first month or two. The budgeting process makes consumers much more aware of the smaller purchases that accumulate throughout the month. For example, eating lunch out twice a week may seem harmless, yet if each lunch costs $10, the monthly total is $80. When you add in taxes, tips, gas money and parking, the total jumps near $100. Those funds could easily cover a cable bill or credit card payment, making a homemade lunch seem much more appealing.
A basic worksheet can help you identify similar opportunities to save in your own budget. Here are five tips to get started:
- Establish Short and Long-Term Goals – Everyone has different financial goals that can impact their budgets in different ways. Are you trying to pay off debt? Are you saving for college? Do want to travel through Europe? Your personal budget should provide avenues to accomplish these goals, even if you need to start with baby steps.
- Put it on Paper – Budgeting worksheets are easy to create yourself, or you can download templates online for free. To create your own, divide a document or spreadsheet into two vertical columns. In one column, make a list of your monthly expenses and the amount you expect to spend on each. In the second column, record the actual costs as they happen. At the end of the month, compare the two columns and adjust your spending as needed.
- Be Realistic – Your budget should incorporate extra costs outside of your regular expenses, such as bills, groceries and transportation. The most effective budgets paint a realistic picture of spending habits, and most of us need a little wiggle room for entertainment, fitness or children’s activities. Just be sure to stop spending once you reach your allotted limit. Budgets are only useful if they’re followed.
- Don’t Forget to Save – A budget isn’t only about tracking expenses; it’s about saving too. Make it a goal to save at least 15 to 20% of your total income each month. While this may not be feasible every month, try to set aside what you can. Even $25 a month is a great start. The extra cash cushion can help you cover costs from unexpected events, such as a flat tire or computer crash, without going further into debt.
- Evaluate Your Status Monthly – Your budget will need to be adjusted as your income and expenses fluctuate. Evaluate your financial situation at the end of each month. Have you noticed any patterns – good or bad? Where can you trim expenses? Every budget evaluation can get you closer to achieving your financial goals.