BUDGETING - HOW TO MAKE AND STICK TO A BUDGET
What is a budget
Quite simply a budget is a summary of the money that comes into the household and money that is spent out.
A budget shows you where and what requirements you have each month and whether or not you can have enough money coming in to afford it. A budget also helps you track where your money is going.
Why do you need to budget?
When you have a budget it allows you to see how much money you expect and how much money you need to effectively take care of all your expenses. When planning an additional expense or taking care of an unexpected expense a budget will show you where and when the money will be available. A budget lets you learn the difference between required expenses like rent and discretionary expenses like entertainment.
How do we budget?
There are some simple steps to take in preparing your budget. Let’s start with a monthly budget.
DETERMINE YOUR INCOME
1. Take a look at your bank statements and write down all sources of income to your bank. It could look like this:
PART TIME JOB
DETERMINE YOUR EXPENSES
2. Next collect all the bill you have received in the last few months. Try to put them in categories such as:
FIXED EXPENSES (expenses that stay the same each month)
CREDIT CARD PAYMENTS
TRASH PICK UP
DISCRETIONARY EXPENSES (expenses that change from month to month)
ENTERTAINMENT 9movies, babysitter, restaurants, etc.)
You can’t make changes in the fixed expenses category, but you can change around the money in the discretionary category.
3. Your next step is to look at you net income— this is the
amount you have left over after you have deducted all your expenses.
IF YOUR NET INCOME IS POSITIVE:
You can then assign portions of your net income towards paying down some of your debt, for example car payments or credit care bills.
IF YOUR NET INCOME IS NEGATIVE:
If your net income is negative than you need to look at your expenses again because you are spending more than you are earning. There are often places where you can adjust your spending. Here are some questions you can ask yourself:
Are you eating out more often than you can afford?
Could you spend less on entertainment?
If at all possible you should add a fix expense with your own name on it. If you can put aside a certain amount each month and pay yourself, within a short period of time you will have a savings account that you can use for emergencies.
Do you have an expensive hobby?
Are you taking expensive vacations?
Can you adjust your cable or phone bill to a lower service?
MAKE A “NEED” AND “WANT” LIST:
If you are having a problem getting your negative net income down you should make a list of what you “want” and what you “need”. As difficult as it may be, carefully examine your “want” list to think about how you can cut down on the “want” list to make room for the “need” expenses.
REVIEW YOUR BUDGE:
4. The fourth step is to review your budget every few months to make sure that your fixed expenses are taken care of and that you are not overspending in the discretionary expenses category.
Learning to make a budget and stick to it takes some time and discipline, but peace of mind knowing that you are living within your means and that your bills are being paid is worth the effort.