How to Budget Your Money
4 Steps in Learning How to Budget Your Money
Learning how to budget your money, for many, seems like a very difficult task. Many have a tendency to rationalize that they don’t have enough income to be concerned about creating a budget. They also think that their money ends up paying bills with a few dollars left for miscellaneous items.
The reality, however, is that by learning how to budget your money now, you will be prepared to handle a more complex budget later on.
It’s a good idea to learn how to budget your money even if you’re unemployed. The reduced income may have to go a lot further and every dollar is important.
[bctt tweet=”Learning how to budget your money can actually save you money” username=”HBSMoneyTips”] and will give you better control of your spending habits. In fact, many individuals aren’t aware that they have bad spending habits until they actually prepare a budget. It can be a real eye opener!
Budgeting is not difficult, getting started often is. Try following the four steps listed below and see not only how easy it is, but how it can change your life for the better. You’ll definitely have more insight in the ways that you spend your money, and more importantly, how to budget your money.
Step 1. Keep a record of all income and expenses
You can use a simple ledger book just starting out to list all of your income and expenses. If you receive a paycheck from your job, record the net amount received in the income column. If you’re also doing freelance work part time, enter that amount for the month in the same income column.
Record all of your expenses such as rent, car payments, and other fixed expenses in a different column. Be sure to record all of those items that you pay cash for such as the $6.00 cups of coffee from Starbucks. (They do add up and take a chunk of money that could be used elsewhere.) As you learn more about how to budget your money, you’ll know how to eliminate some spending.
Step 2. Itemize all expenses and keep receipts
This often is difficult for many because it involves holding on to a physical receipt & marking what the money was spent for. The idea here is to get used to being in control of your spending and doing without some things. This sounds easy, but as we said, it can be very difficult for some.
It’s important because it helps to establish your spending habits and areas where improvement can be made. There are many items that we buy without realizing the total cost and often mis-use of money. Perhaps, instead of the Starbucks coffee, a cup from 7-11 will suffice. If you ever get to the point where you have “money to burn”, then enjoy Starbucks. Another area where you can save is maybe brown bagging instead of eating lunch out every day.
Step 3. Prepare a more formal budget
After a few months of using a ledger and pen, you might find it easier to get an inexpensive budgeting software program. This will assist you in learning how to budget your money by creating a more formal listing of income and expense categories. Some will even allow you to download your bank transactions which will save a lot of time and work. This type of budget is prepared on a monthly basis and can give you various types of reports as well.
Step 4. Setup savings and an emergency fund
When you get to the stage of using a budgeting software program, you will be able to fine tune your budget to one that you will be able to follow. The economy can change frequently and your budget needs to be able to change and adapt accordingly.
It’s very important to begin setting money aside for a future emergency. If there’s one thing you can count on, it’s that an emergency will occur that will require extra money. Place an amount each month into a savings account to keep it separate. This is a necessity in learning how to budget your money.
Another important item is saving for retirement. I realize that a young individual doesn’t want to be concerned with retirement that may be forty years away, but believe me, time does fly and that day usually arrives before you have enough money saved. Don’t wait, start now.
If you run out of money before the end of the month, or if you see certain items that you must have, don’t be tempted to purchase them on a credit card. Unless you have the funds to pay the credit card balance in full, do not make unnecessary purchases. It doesn’t take long to max a credit card out, then you can get in real trouble.