How to Budget Money the Easy Way
During times of economic hardship or even just starting out in the world as a new independent adult, budgeting is the key to avoiding financial disaster. However, even the mere mention of the word "budget" is cause for anxiety and dread for many. Sample budgets and templates attempt to make budgeting easy, but often cause more confusion and headaches. Why do you need to fill in information for childcare costs if you have none? Where do you enter your auto loan payments if the auto section does not include it? Sometimes we focus so much on questions like these that we forget about costs we do have that are left unmentioned. Samples and templates may help with making your budget look aesthetically pleasing; however, the goal is for functionality. The following information will provide you all you need to know to easily put your budget together and act on it.
Income & Expenses
First thing you need to do is write down all your income sources on a piece of paper. Do you have a job? Are you receiving pay for disability? Is supplemental income coming in from writing online or helping your elderly neighbor with her groceries? Write it all down. The secret here is to always round down your change. If you have a bi-weekly paycheck that is $315.98, only log $315. Do this with each source of income and then total them.
For your expenses, list everything. Start with what you need to pay: bills, rent/mortgage, insurance, car payments, food, etc. Then list things that you spend money on that you may not need: books for leisure, video games, manicures, concert tickets, etc. Your trick here will be to round everything up. For example, if your mortgage payment is $725.02, log $726. Now that you have everything listed, you can start setting your budget.
Determining Your Budget
This is where everything can get a little tricky, but is far easier that it seems at first glance. On a new sheet of paper, list your income sources without the numbers like this
- Pay from job: ___
- Disability pay: ___
- Supplemental income: ___
Now take a look at the numbers you wrote down. For example, your bi-weekly paycheck was $315 so your monthly pay is $630. Your supplemental income, however, fluctuates. You may receive $20 one month and $60 another. You can either track this income for a few months and average it out, or go a safer route. If you know that $20 may occur more often than not, that will be the amount you record on your budget. The total you have from your income should be the amount of income you are guaranteed to have every month.
Next look into your expenses. Focus on your needed expenses first. You can live without manicures, but you need to pay your mortgage. Look at your first page and see what you have. Some of these expenses change from month to month. For example, you may spend $150 on groceries one month and $280 the next. Go with the higher end of the range when recording these numbers just to be safe. Keep seasonal fluctuations in mind, too. Your utility bill will likely be higher in the winter months when there is less daylight hours requiring you to use indoor lighting for longer. If you are setting your budget up in the summertime, this is something you will want to keep in mind when the winter months roll in again. Once you have entered your costs for all necessary expenses, add them to find your total. If they are more than or equal to your income total, stop there. Your unnecessary expenses will have to wait until you have more income or find ways to decrease your necessary expenses.
Do you have a savings account?
Savings. You need to have it. Your savings will be used to cover occasional and unexpected costs not listed in your simple budget. Ideally, you should already have savings when you start your budget. If not, budgeting is going to help you build it now. The goal is to have enough money in savings to afford to live on your current expenses for no less than six months should you lose your source of income. If you have no savings, put off all unnecessary expenses for at least two to three months. All the money you have left over after you pay your monthly necessary expenses, put it aside. If you can open a savings account at the bank of your choice, that will be your safest bet. Be sure to research different banks and look at their options. You may find a bank different from the one you use for your checking account has better benefits for savings accounts. Do not be afraid to use different banks.
Once your savings increases to a point that you can afford all of your necessary expenses for no less than two months should you lose your income sources, you can start adding in unnecessary expenses. Determine a set amount of money to save each month. Until your savings can cover six months of expenses, you want more of your money going to savings than to other expenses. Once you have reached an amount to cover six months expenses, you can set a lower amount of money to your comfort level to add to savings that you can put toward large purchases in the future.
While you are building your savings, you may reach a point in which you feel overwhelmed. Keep in mind that "entertainment" expenses are a necessity at times. Obviously, you will never build a savings if you are always spending your money on unnecessary trips to the mall. However, indulging in that cafe latte or enjoying a matinee movie on occasion can help to reduce stress. If you find that you are getting too wound up or feel like you never do anything but work and pay bills, do not stress about spending $20 dollars for something unnecessary that will elevate your mood. You will have a hard time earning money and keeping your income sources if you burn out. Keep your health (including emotional) in mind.
Adding In Other Expenses
With necessary expenses covered and a savings built up for backup, you can now start adding in unnecessary expenses. Start with what you do not want to give up first. Concert tickets may provide the opportunity to socialize and enjoy your favorite music whereas manicures help to unwind and relax after a hard day of work. Which benefits are more important to you? Whatever your extra expenses are, pick the one that you value more and start with that. You may keep going until you run out of unnecessary expenses or your expenses list equals to your income total. Hopefully, all your desired expenses will get to stay. If not, you will either have to cut out your other expenses or increase your income. Find ways to reduce your expenses like using less electricity and water to cut down on your utility bill or look into roommate opportunities to cut rent or mortgage costs in half. If you are savvy, flexible, and willing to do a little extra work, you will afford your extra expenses.
Tracking Your Budget
You have your budget. You know how much your expenses are, how much you need to set aside for savings, and how much you can spend on other expenses. So now what? Keep track of everything. Set your budget up for every month. You can do this on separate pages in a notebook or use computer software. Throughout the month, log how much you actually earned and spent in each section. Did anything go up? Did anything go down? Keep track of these changes. After a couple months, sit down and reassess. Do you need to decrease or increase your anticipated spending in any areas? If so, do so. After your first year of budgeting regularly, you will find you are tweaking less often as you grow comfortable with balancing your income and expense needs. After a little time, you will realize that the word "budget" is not so scary after all.
Tips for Reducing Expenses
- Live Cheaper Every Day - Small Easy Steps To Saving Money
Save money - by taking small steps. If you are persistent, you will be able to save more money each week with easy changes.
- Frugal Living Tips for Families: Save Money and Have Fun
You don't have to sacrifice fun as a family when you are sticking to a budget. Consider these easy frugal living tips that lead to significant monthly savings and minimal complaining by your children and spouse.
- Tips for Saving Money from a Frugal Mom
In today's economy, we have to pinch every cent we get to raise a family. Here is one mom's way of saving money and stretching a dollar.
- Living on a Budget whilst still loving life
Suggestions to help reduce costs and sticking to your new budget while maintaining your sanity.
- Frugal living tips for times of crisis
Suggestions to help you save money and cut costs.
- Saving Money With Coupons: A Beginner's Guide To Couponing
An easy to follow step-by-step tutorial that shows you how to coupon in under an hour per week.
© 2012 Evylyn Rose