Do you breathe a sigh of relief when the payment terminal reads “approved” at the register of your favorite store? Or do you sit at the kitchen table the night before payday trying to determine which creditors you’ll pay this pay period? No one enjoys having or plans to have more bills than money to pay them. However, you can climb your way out of this predicament or avoid it all together with the creation of a monthly budget.
Budgets may not sound like fun, but they keep you on top of your finances. Like a smooth-running business, you’ll know where your money is going and how your home is functioning with a well-planned budget that you can stick to.
How to Budget?
Before you can build a monthly budget, you must identify the current state of your financial affairs. You can’t create an effective budget without discovering how much you have and where it is going. Take the following actions to uncover your monthly income and financial obligations:
- Determine your net income (This should be your take-home pay after taxes and benefit deductions for both you and any other financial contributors to the household as well as any other money coming in from side businesses, alimony, child support etc.)
- List all of your monthly expenses including: your mortgage; car payment(s); car, life, and homeowner’s insurance premiums; cell phone bill; utilities (electricity, water, trash pick-up, and gas bills); cable and internet bills; credit card bills; student loan payments; daycare expenses; gym and other memberships; commuter expenses (bus, train, or subway fares, gas, and parking fees); food; entertainment expenses; and savings.
Now that you have documented all your income sources and created a snapshot of your monthly spending habits, you can pinpoint where the gap is in your finances. If you have more money leaving than coming in each month, how are you covering the gap? Are you dipping into savings or relying on credit cards? Coming up with the answers to these questions will help you better manage your daily financial life and end the struggle to make ends meet.
Building Your Budget
Whether you choose to use a financial ledger, a simple spreadsheet, or invest in budgeting software, take the intel you uncovered above and determine which expenses are necessities and which are luxuries. Maybe you don’t need cable, if you subscribe to a video streaming service. Perhaps you can discover the joy of cooking at home thereby reducing the cost of takeout orders and dining at restaurants. You also could investigate whether you can obtain cheaper rates on certain expenses like your cell phone and car insurance bills. If you involve the whole family and set a prize or reward for the extra money you save, finding ways to trim your expenses could be fun rather than a punishing chore.
Establish and commit to a monthly budget and the next time you’re at the point of sale you can grab your wallet with ease.