Hopefully, you already know how to build a budget but, lots of people don’t. And, even if you know how, maybe you will find a new tip or two here.
Sometime back, I wrote a post about the need for a budget. You can find that post here. Hopefully some folks tackled the challenge and have gotten their finances somewhat under control. But it can seem daunting task. Here are some tips that might help you build a budget.
How to get started creating a budget and find out where you stand
- If you are doing this as part of a family or a couple, get everyone involved
- Make a comprehensive list of everything you spend your money on. Either old credit card statements or bank account statements are a good place to start. Be sure to look back at least a year. It will help to look at the annual amount of each line item.
- Start by focusing on the major expenses you pay for regardless of the frequency. This will include things like mortgage or rent, car payments, insurance expenses, utilities, loan payments, school expenses and the like
- If you don’t already have a line for savings, add one! I would suggest 10% but you can adjust to fit your needs. But. saving isn’t an option, it is a necessity.
- Classify each expense into one of these categories: Fixed Expenses (something you cannot affect, like your car payment, or mortgage . . . or savings) Variable Expense (things that can be changed with changed circumstances, like groceries, credit card debt repayment, gasoline expense or your telephone or cable bill), and finally, Discretionary Expenses (these are things that could truly be eliminated or seriously curtailed if need be (like dining out, vacations and miscellaneous spending money).
- Total each of these categories and calculate the grand total.
- Compare this total to the grand total of your annual take home income.
- If you are like many people, you will be shocked to find that what you are spending, doesn’t sync with what you are taking in.
Clearly, this isn’t a sustainable path and changes will have to be made.
How to begin to close the gap
Okay, so now we need to address some ideas for how to close the gap.
- Focus first on the discretionary items, which are things you really have a good deal of control over and move on to the Variables, though, these are much harder to impact. The only possible area for change in Fixed Expenses might be savings but, only as a last resort.
- If you don’t already do so, it is really important that you decide on an allowance for yourself and see what discretionary expenses can be handled out of your allowance. This will empower you to make the choices that fit you best.
- Look for places you can make substitutions (make your coffee at home and take it to work, instead of spending $5.00 a day on Starbucks).
- Find items that you really can do without and take the necessary steps to get rid of them
- Look for items you can reduce too These can often add to available cash while leaving you some flexibility. Reducing number of services on your cable bill and reducing the size of your data plan for your cell services are two idea that come to mind
In the end, getting your budget under control is going to require some changes and some sacrifice but you have to do it for your long-term financial health.