Budgeting

If you find that your expenses outweigh your income, or that you have plenty of income, but you're still unable to save for your goals, then a good monthly budget may be the remedy for you. A budget is merely a way to track your spending to ensure you're using your money in the way you want it to be used. You can create a budget with just a few simple steps:

• First, determine how much income you have. Be sure to use your net rather than your gross income.
  
  
• Next, set your financial goals. This can be a specific goal such as "I'd like to save $5000 so I can spend next April in Paris" or a more general goal such as saving 10% of your income for an emergency/rainy day fund.
  
  
• Once you know your income and have a good idea of your goals, identify how you're spending your money right now. For at least a month, track every penny you spend. You may want to put all your purchases on a debit or credit card (pay it off in full at the end of the month, of course) so you can use the itemized statement at the end of the month, or you can jot everything down as you go on a small notebook or phone app, or, just save the receipts for each of your purchases so you can write them down later. Whichever method you choose, remember that while some fixed expenses such as rent and utilities are easy to identify, other discretionary expenses are not as obvious, such as ATM fees or the $25 deducted from your paycheck for a one-time charitable donation. While these expenses are usually small, they can add up fairly quickly and you may be surprised at how much you're spending on such things.
  
  
• You should also remember to add in expenses that you pay annually or quarterly on a pro-rated basis. For instance, if you pay $600 in car insurance every six months, then figure in $100 per month for that cost.
  
  
• Next, organize your expenditures into categories. A simple spreadsheet should do the trick, or if you prefer, you can find a multitude of free budgeting worksheets online. Categorizing your expenses will make the next step much easier.
  
  
• Analyze your spending habits to see where you can make changes. This can be a real eye-opener and should help you to identify areas of your budget that you can trim without creating too much angst. For instance, if that occasional mid morning latte becomes a daily caffeine habit, you're probably spending a lot more than you realized. Treating yourself just once or twice a week, or better yet, bringing coffee from home every day can save you a substantial amount. At the very least, after analyzing your spending habits you'll be more aware of where your money goes so you can make conscious choices about how you spend your money.
  
  
• Once you know how much you have to spend, how much you'd like to save, and how you currently spend your money, you can create a plan for how you're going to spend your money in the future to meet your financial goals. Be realistic when setting your spending guidelines. You don't want to set yourself up for failure by overestimating how much you can reasonably cut from your budget. You may need to use trial and error for a few months to refine your budget to stay within the spending limits you've set while still making progress towards your financial goals.
  
  
• After you've created and fine-tuned your budget, it's a good idea to get in the habit of tracking your spending to make sure you're staying within the spending limits you've set. If you find you're consistently overspending, it might help put things in perspective to ask yourself "Is this something I need, or something I want?" before making a purchase. Foregoing some of the things you want right now can lead to big financial rewards in the future.