Climbing Mt. Everest: Many people have never created a budget because it seems like an insurmountable task. In reality, creating a budget is simple and the feeling of power it gives you over your money is a great way to start each month.
The first step to creating a budget is keeping a detailed record of what you spend. With so many ways to spend money these days – cash, credit, automatic withdrawal – it is important to have a system that captures all aspects of your spending.
There are many digital tools that can help organize your expenditures. Look for free apps that will group all of your spending in one place, like Mint or Mvelopes. Once you have collected records for a month, analyze the data. Divide your spending into large categories – housing, food, utilities, entertainment, shopping, savings, and miscellaneous. You should be able to see exactly where your funds are going.
Be Honest: Next, determine which expenses are necessary, and which expenses might be considered frivolous. Is your money going towards what is really important?
Depending on your financial situation, certain sacrifices might have to be made. For instance, if you purchase a medium coffee from the cafe every morning, and the coffee is approximately $5 a cup, the cost quickly adds up to $100 a month! If you do this every month, you could end up spending $1,200 on fancy coffee! Look at places you can cut back in order to apply that money to something with a higher priority, like high-interest debt or an emergency fund.
One System! No matter how you allocate your money, the important thing is that you stick to your budget. The Envelope System is a popular budget type. After payday, you physically cash your check and divide the money up into envelopes labeled with each of your spending categories. For example, you may have an envelope with money for savings, one for fuel, one for utilities, and one for groceries. This system works because you can physically see the money you have left to spend for each category. Just be sure that you NEVER cheat on your envelopes.
Ready? Putting together a budget is easy. Sticking to the budget is much harder. It undeniably tests your willpower. The key to maintaining your budget is continuing to track your spending. Pick a day each week to go over your finances and make sure everything is as it should be. Continue to use budgeting apps, online financial management tools, software programs or even pen and paper to track your expenses. If new expenses arise, adjust your budget accordingly.
By creating a plan that works for you and by following that plan consistently, you will reach your financial goals quickly. It is a wonderful feeling to know that every penny you make, goes where you want it.
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