How high is it on your list of "things I can't wait to do" to sit down and make a personal budget? If you're like most people, it's probably somewhere between sticking a fork in your ear and getting a root canal. We don't blame you, because making a budget for yourself is not the most exciting thing in the world. But it's a must if you want to be financially stable. It shouldn't hurt too much though. With the technology we have now, making a budget is pretty easy. Just remember that making a personal budget has three goals: 1) to list your expenses, 2) to set goals for the future, and 3) to find ways to save money so you can reach your goals.
How does your money get spent?
When it comes to making a budget, the first step is always the hardest. You need to know what your money is being used for each month. You could look through your bank statements, credit card receipts, and check ledgers and write down every expense you find on a piece of paper. That's an option. The other, easier way is to use the personal finance software that is so easy to use these days.
Programs like Microsoft Money and Quicken were made to help you keep track of your budget. Just type in your monthly expenses, sort them into categories like "car," "food," and "clothing," and "subcategories" like "gas," "dining out," and "shoes," and the programme will give you a detailed report of your monthly income and expenses.
Online banking is an even easier way to keep track of your money. Most banks have a service that lets you download your account history and put it straight into a finance programme. Sometimes, it will even put your spending into categories for you. What a piece of cake!
What do you want to do?
You just found out how much you spend each month on those fancy coffee drinks you love, thanks to your software. That's great. But what now? Now you need to give yourself some goals.
Don't be surprised if your report shows that you spend more than you make. Statistics from the Labor Department show that many families who make less than $50,000 a year spend a bit more than that. This is hard to believe. If you're one of them, you need to stop spending so much. Even if you're not in that situation, there are probably a few things you don't need to spend money on.
In general, you should spend no more than 90 percent of what you earn. The rest of that money should be saved or used to make investments.
Cut and burn.
As you look more closely at your budget, some ways to save money will jump out at you. Most likely, the costs of eating out and other fun things will stand out the most. Clothing that costs a lot could be another. Look for small costs that you don't need and can do without, and get rid of them. They won't be missed.
Even though small things can kill, there are probably bigger costs you can cut. Take a long, hard look at how you live. Is your car a bit too nice for how much you make? Do you eat out too often at five-star restaurants? Are weekend trips becoming more and more common? If so, slow down. Even though it's not fun, it's important.
Lastly, look at things like your taxes and bills. If your current mortgage payment is two percent or more than what is available, you might want to look into refinancing. Make sure you get the most deductions when you file your tax return.
