Budgeting is perhaps the single most important way to manage our money and yet so many of us forget this essential part of the equation when dealing with our finances. You make plans for just about everything else in life, so why not make plans for your money, too? Budgeting is more than just planning, though. It’s essentially keeping track of where your money goes, down to the dollar. If your money situation has left you reaching out for the occasional payday loan to help make ends meet, you may want to seriously reconsider how you have been managing your money, and here are 4 simple rules you can follow to set up an effective budgeting strategy:
First, write down everything you need money for each month. Start with your fixed expenses such as rent, utilities, car insurance and so forth. Now, it’s time to do a little basic math. Add up all your fixed monthly bills and subtract that number from your total monthly income. This should give you a clear picture of how much money you actually have to work with for all of your other expenses.
Next, add in other expenses like credit card payments, gas, groceries and savings contributions. Subtract how much money you think you’ll need for these essentials from your remaining monthly income. Whatever money is left over should stay in the bank until your next payday. Eventually, when you have enough surplus income saved up, you can begin to make room in your monthly budget for other expenses, like entertainment or any other non-essential purchases.
Budgeting requires the ability to make positive changes and adapt to them. If you want to stick to your budget, you’re going to have to learn to do things differently. For example, if you’re used to going out to eat during your lunch breaks, start bagging your lunch instead. Takeout food will usually cost you about $10 a day, which equates to $50 each workweek. A small move like bringing your lunch from home could save you about $200 month, or a whopping $2,600 a year.
It is important to make sure you’re staying on top of your budget. How did you do your first month? One of the most effective ways to manage your budget is to take a look at your monthly bank statement. This comprehensive list of financial activity should show all your spending for the month. Highlight the areas you think you can improve on for the following month, then repeat the process 30 days later.
When shopping for things you need, be very selective about what you’re buying. Always ask yourself, “Do I really need this?” If the answer is yes, see if there’s a cheaper alternative you can purchase instead, like choosing the generic store version over the national brands for your essentials. You’re getting the same exact product without paying extra for the sake of having the popularly branded packaging.
Now that you have the basic guidelines for setting up a budget, it’s time to go ahead and give it a try. Don’t get discouraged if you slip up at first, because learning to effectively budget is a big transition and takes time to learn. Just stay the course and keep trying, and before you know it, you’ll have all your bills paid, money in the bank and enough left over to have some fun. It may take time, but budgeting is a sure way to take control of your finances.