If you want to take control of your money and your financial future, the most important thing you can do is to create a budget. Knowing where your money is going is the first step to successful financial management.
To create a budget, you first need to understand all your expenses. To do that, take a blank piece of paper and jot down all your everyday costs. Make as many columns as you need for each topic; if you trouble remembering your expenses, check your checkbook or credit card statement. Some of the things you can include on your list are:
- Housing and Utilities: rent or mortgage payment, insurance, electric/gas/water, phone bill, cellular phone
- Household: groceries, school lunches, cleaning supplies,
- Entertainment: cable TV, internet, book clubs/magazine subscriptions, sporting events, clubs, movies or clubs, vacations, hobbies, etc.
- Transportation: car payments, public transportation, gas
- Clothing/Beauty: haircuts, make-up, nutritional supplements, clothing and shoes, dry cleaning, repairs, etc.
- Other: debt payments, healthcare, child care, investment, gifts, charitable contributions, etc.
Once the list is ready, write a fixed dollar amount next to each item. Add all expense amounts to create a budget that reflects your actual monthly expenditure. Now make a list of all your income sources. Besides your salary, how else do you get money? Contributions? Scholarships? Gifts? List all income sources and then add them up to come up with a monthly total.
Now that you have two final numbers, you need to actually create a budget. For that, start by comparing both numbers. If you have positive cash flow, your goal is to learn how to use the extra money: you could your credit card, save it, or invest it. If, on the other hand, the total expense amount exceeds the income, you need to trim the difference. Create a new budget to help you see the areas where you can cut back without suffering any lacks, such as cutting down on smoking, shopping around for cheaper insurance, or using coupons to lower your grocery bill.
The most important reason to create a budget is to keep control of where your money goes. The format matters little. Some people prefer to work with a daily planner, while others do better with some type of accounting software. The important thing is to create a budget you can live with it. Cutting out all the entertainment expenses may seem like a good idea at first, until you start feeling deprived. Rather, cut a little from each section and your overall budget will benefit without your feeling like you're robbing yourself of anything.
