Have you ever been staring at your bank account balance and wondered where all your money went? Well I know I have and it is not a good feeling. We start wondering how we are going to pay our rent/mortgage, our car payment, credit card bills, etc. The last thing we want to do is ask to borrow money from a friend or relative. Money management is extremely difficult for most people. The following are 7 steps to creating your budget:
- Set a goal: Why are your creating a budget? Are you trying to pay off debt, save for college, buy a car, save for a wedding, etc. This gives you something to strive for and will help you to stay on track.
- Figure out where your money is going: This step will be a little tedious, but I promise it will really help you. Gather your bank and credit card statements for the past two months. Create a spreadsheet that categorizes each expense for the past two months. Examples of some of those categories may be household expenses, groceries, automobile, entertainment and debt payments. After you have done this track all your spending for the next month. This will give you a good pattern of how you spend your money.
- Eliminate unnecessary expenses: The average Starbucks customer visits Starbucks six times a month. If that person spends $5 on a drink that equates to $360 a year. Yes, I know we all need our coffee. I am not saying to eliminate everything because we all need to have fun, but there are always things you can cut. Try making coffee at home or take your lunch to work. These two things can save you thousands a year. Set a limit on the numbers of time you go out to eat a week. Think about eliminating cable and subscribing to Hulu Plus and Netflix for $16 a month.
- Start a savings account: Now that you have eliminated unnecessary expenses, open a savings account. Try saving $50 a month at first then increase it every few months if your finances permit it. Set up an automatic transfer from your checking account to your savings account every month. This way you don’t have an excuse to not save.
- Pay with Cash: This is one of the easiest ways to realize how much you are spending. It is so easy to swipe a debit/credit card, which leads to over spending. Give yourself a cash allowance each week and once that is gone you are done.
- Freeze your credit cards: You may think I want you to call your credit card company and tell them to freeze your credit card. I actually want you to place your credit cards in a freezer bag (so they are safe from the water) and put it in a freezable container with water and freeze them, this way if you will only retrieve them if you really need them.
- Pay down debt and create a rainy day fund: Paying down your debt is a much better option than spending the money on the latest toy or piece of clothing. Paying down your debt will give you more money in the future. Additionally, try to save enough money so that you have three months of expenses covered. This will give you some security in the case you lose your job or have an emergency.
When I first created a budget I didn’t think I could do it, but I am much more financially secure now and you can be too. These steps can be very tough to complete, but they are not impossible.
I hope this blog was able to help you in some way. If you need any help or have any questions feel free to email me at email@example.com or message me on Twitter @mdoyle18. I am happy to answer any questions. Thanks for reading.