Budgeting for Beginners
Everyone needs money – it is a fact of life. Getting a job and making money is only half the battle. Once you have a steady income coming in, that income must be managed. Managing money effectively can be very difficult, but it can be done quite painlessly with a budget. Put simply, a budget is a plan for managing your money wisely.
Before making a budget, it is a good idea to sit down and think about your expenses, or what you spend money on. Expenses are things like food, rent or a mortgage payment, transportation, utilities, clothes and entertainment. You may find that you need to keep a running list of what you spend your money on throughout the month to accurately determine where your money is going. Although this might take some time and effort, it’s worth the effort. Once you have a list of how much money you spend, make another of how much money you make. Now you are ready to make a budget.
Start by writing down your monthly income at the top of a piece of paper. A person’s income is usually just their paycheck or salary, but it includes any money you get regularly throughout the month. Since income generally is fixed, or does not change much, the work in budgeting comes in distributing that money to expenses. Then, determine which expenses are fixed necessities, things you pay the same amount for every month that will not change. These are things like a car payment, rent, student loan payments, etc. List these and deduct the amount needed for each item from your income. Now, think about other necessities, like food, utilities, gas, etc. that may vary. Realistically estimate how much you spend on each of these things. Write these down next, deducting each amount from your income as well. The amount left after deducting your fixed and variable necessities from your income is the amount of money you can spend on non-necessities, like eating out, entertainment or travel.
What can you do if you run out of money from your income before you get to budgeting for your non-necessities? You can’t change your fixed expenses, so take another look at your necessities that are not fixed expenses. Is there anywhere you can spend less money? Is there anything that is not really a necessity, like eating out? Can you trim bills for things like utilities or transportation costs by using them less? These are questions only you, of course, can answer. By looking at where your money is going, you are better informed to make decisions about where and how to spend it.
The next difficult part of making a budget is sticking to it. Once you have decided where your money should go each month, try to keep it that way. Pay your essential bills first, then if you have stayed within your budget, use the money left over for non-essentials or to put into savings. By carefully watching where your money is going and sticking to a budget, you will be surprised how financially responsible you can be.