In our hectic lives, it seems like there’s never quite enough time or money. There’s no way to squeeze more hours into a day, but there is a way to squeeze more bang out of your buck (and put some away for a rainy day). And it just takes a few simple steps. Here’s how to get started creating your budget:
What Comes In, What Goes Out
First, you’ll need to know how much money you’re bringing in. That means your paycheck, any benefits you receive, child or spousal support, and any other money coming into your house. If your income isn’t always steady, try to make a conservative estimate – on the lower end of what you usually make.
Next, you’ll need to know how much money can go out, and to where. Try breaking up your expenses into a handful of categories. The categories may be different depending on your family’s needs, but try to keep it down to half a dozen or fewer for the sake of simplicity. For example, you might split things into:
- rent/mortgage and utilities
- credit card and debt payments
- household goods
Next make a list of the purchases that fall under each category. In the top one, that might be your rent or mortgage payment, electric bill, gas bill, water bill (if applicable), cable bill, and phone bill. For groceries, you may want to make a list of your monthly or weekly food purchases so you know how much you spend. Some of these categories will be fixed, like rent, while others have some wiggle room. Start with the fixed ones and then move on to work out how much you can afford to spend on the others.
Now you can look at the money you have coming in and the money you have going out, side by side. You may find that you’re spending more than you think on certain items, which gives you room to cut back and save more.
Use The Envelope Method
After you have determined what you want to spend in each category, use the famous envelope method to keep you on track. Even though having a debit card makes it quite easy to get about your day, it can also make it all too easy to overspend. The envelope method means you only use cash, so you’re never going to overdraw your account.
Here’s how it works: you take out all the money you need in cash at the beginning of the month. Make an envelope for each of your major expense categories and put the appropriate amount of cash in each one. Now that money is allocated to where it needs to go ahead of time, making it easy to stick to the budget.
If you have extra funds in any of the envelopes at the end of the month, you can roll that forward into a future month, add it to your savings account, or give it to charity.
You may also consider putting in an envelope for a big goal – a car, a down payment on a house, or a vacation. You can allot a certain amount of money to that envelope every month and you can put any extra from other envelopes in there, too. That gives you a little boost of motivation to keep your expenses as low as possible.
Try An App
The envelop method is a great because it takes away the risk of overdrawing your debit card or overextending yourself on your credit card, but your entire budgeting process doesn’t have to be done on paper. There are a number of apps and programs out there to help you manage your budget. Many of them will let you input your income and expenses and will come up with suggestions for how much to spend on each category. Those programs can also flag places where your expenses may be out of whack before you notice, making it easier to fix them.
Give It Time
Practice makes perfect – learning to make and stick to a budget takes time. So start slowly, with reasonable goals, and remember to celebrate your achievements as you master the art of budgeting. No budget is perfect and sometimes you’ll end up off track, but that’s ok! Give yourself some time to figure out how to make your budget work for you – your wallet will thank you.