Budgeting is a simple process of arithmetic and knowing your limits. It is not hard, and can help you stay smart with your money. If you are living paycheck-to-paycheck and have an empty savings account, budgeting can help you get back on track with your life.
Your first step in creating a budget is to figure out your income. Income is not only your paycheck, but can also be many more things that you might not think about. Here are some examples:
Once you have all of your income added up, you can determine all of your expenses. This might be a little harder than figuring out your income. There are three types of expenses; fixed (mortgage, car payment), flexible (food, clothes, utilities) & periodic (car inspection, taxes). Once you have them all written down into each category, you can add them all up.
The next step is to compare your income to your expenses. If your income is more than your expenses, you’re good! If your expenses are more than your income, then you will need to do some readjusting.
The first type of expense you will probably need to adjust is your flexible spending. You can cut the number of times you go out to eat, you can shop at department stores instead of designer boutiques, and you can even remember to turn the TV off before you go to bed. Doing all of these things can cut your expenses down.
It is a bit harder to cut down fixed expenses. Your only real way of doing this is to either sell or get rid of whatever you are paying for, and buy something a little less expensive. If paying your car payment each month is causing you stress because you don’t have enough money for food, you should probably sell your car and buy one that will have a cheaper monthly payment.
Periodic expenses are tricky to track, and almost impossible to cut. There are things that need to be paid no matter what. You have to get your car inspected and you have to pay your taxes; there is no way around it. So with these, you will just have to remember to set extra money aside each month so that when the time comes when you have to pay, you won’t go broke.
Once you have cut your expenses, track them. Whether you keep all of your receipts, write all transactions down in a notebook, or use a computer program like Finance Works or Mint, you must track your expenses. Doing this can help you see where you are overspending, and helps you stay in your budget.
Always remember to be conscious of your budget. Don’t go over however much your income is. And always be sure to set money aside for savings. After you’ve gotten your perfect budget down, you can try to increase your income. If you can increase your income, while still maintaining the same budget, you can save a ton of money.
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