Credit card debt can be easily avoided with the right tools, such as a budget to help manage your finances. Budgets give a great overall picture at how much you are spending and where exactly your money is going. Learning how to create a budget seems like a painful process of examining your finances, but you will thank yourself down the road because it can serve as a much needed wakeup call as you examine your spending habits.
Create An Excel Sheet
To begin your budget you will need to create a spreadsheet or utilize an online budgeting tool such as Mint.com. These tools have made it much easier to develop and organize a highly adjustable and sustainable long term budget.
Know How Much Money You Are Starting With
If you have savings, checking, investment accounts, etc., you will want to know how much money is in each account. This gives you a starting point for determining budgets for each expense category and gives you an idea of what you can and can’t afford.
Determine Your Average Recurring Monthly Expenses
The best way to determine your monthly expenses is to record all of your expenses for a month. This means keeping your receipts, utility bills, and any other expenses that arise during a one month period. Then, separate these various expenses into categories, which can be as general or as specific as you want them to be.
Once you have determined your average recurring expenses you may find you are living beyond your means. It may be time to make some cuts to your expenses. Do this by taking a critical and honest look at what is actually a “need” in your life. Do you really need to eat out every week? What about that shopping fund? Once you establish what is a necessity, you can start to look for more affordable alternatives for the things you want. For example, if you love your weekly yoga class, look for discounted classes online.
Life is full of surprises. Food gets more expensive, gas prices rise, and rent can get hiked when you least expect it. It is important to be aware of these unexpected expenses and make adjustments to your categories. Having an emergency fund is a great way to be prepared.
Pay Your Big Payments First
When you get your paycheck, make the most important payments first- things such as your rent, utilities, bills, loans, etc. Then, see what you are left with- this money can be used for those unnecessary expenses such as eating out or going on a shopping spree.
Track, Monitor, and Be Disciplined
Keeping track of your budget takes about an hour or so a week, but this will save you a lot of time in the long run. Once you have an established budget, you will want to keep it in check by constantly monitoring it. Having discipline and the knowledge that you are making good long term and short term financial choices will provide you with a great deal of comfort, and will take you from living paycheck to paycheck to being able to see the positive results of your successful financial planning.