Knowing how to budget your money is the first, and biggest, step on the road to financial security. Here is some advice on how to make a budget that will organize your money and make it go a lot further.
While tracking all expenses might seem daunting at first, it does not have to take too much time. There is a lot of great budgeting software that will automate the task considerably. If you do not want to invest in one of these, just doing it all on a regular Excel spreadsheet is relatively easy. Regardless of the method used, first decide on categories to organize things under such as housing, food, entertainment, education and the like. Then, add every expense as it comes in. If this is done daily, it can be quick and easy and usually within a few minutes since everything will be fresh in your mind.
The next step is to calculate your average monthly income. When it is necessary to estimate, always use the most conservative projection and never assume any income that is not certain. Furthermore, put all the money you receive into the budget, and nothing should be thought of as money to blow on unnecessary purchases.
Then, it is time for the scary part of comparing income to expenditures. If you are like most people and are in the red or are not saving enough, it is now time to start looking for savings to reduce expenditures until they are at least ten percent below income.
How to budget your money by reducing expenditures
Finding savings in a budget needs to start at the top. For most people, housing eats up a large chunk of income. When looking for housing (or anything for that matter), always keep in mind how many hours it will be necessary to work to pay for it. That extra space and luxury do not mean as much when you spend all your time away working for them or cannot relax because of the upkeep required. Whenever the situation permits, go with smaller accommodation, roommates, family or whatever it takes to reduce housing costs.
Get out of debt
Buying things on credit and paying interest is like willingly agreeing to pay more for everything you buy. Therefore, those who really want to budget their money put everything into getting out of and avoiding debt, particularly credit card debt. This might start with debt consolidation loans for those in deep, but whatever it takes; everything possible should be put into paying off every penny of debt until interest on debt has been permanently eliminated from the budget. Once that is done, never spend what you do not have again.
While it is a necessity of life, this is no reason to eliminate it from cost saving measures. In fact, since it is a daily expense, even small savings found in the food budget can add up to a tidy sum over time. Be it eating in, taking a lunch from home to work, taking steps to save money on groceries, eliminating unneeded snacks, find these apparently insignificant savings that can grow into so much more.
Be it smoking, drinking too much or some other vice, many people spend money regularly on things that only do them harm. Use the need to reduce spending and budget your money as further motivation to give up these vices.
Look at utilities
Utility expenses can really bite and must be looked at carefully. Often, there is a land line, cable channel or some other service that is not used enough to justify the expenditure. Once that is eliminated, seriously look at ways to reduce costs by cutting use. Be it wearing warmer clothes in the house in winter or sweating it out a bit in the summer (this is healthier too), there are a lot of tricks to cut energy consumption. Look both at lifestyle changes and investments in things like insulation and compact florescent bulbs that will increase energy efficiency.
Only take out insurance on what is really necessary and do not buy extended warrantees. Remember that the odds are you will have to pay out more than you will collect.
Cut car use
From their purchase to maintenance and insurance, cars are generally the second biggest expense people have after housing. While it is impractical for many people to live without a car, it is often possible to cut down on the number of cars needed or the frequency of their use. Use car pooling, public transport, bikes, internet shopping and whatever else it might take to reduce the frequency in which cars are used and their expense.
Doing things yourself can offer both greater savings and satisfaction while expanding your skills as well as knowledge. It can even take the place of some of those vices you might be trying to get rid of.
Most people have far more clothes than they truly need and waste a lot of time and effort keeping them organized and the like. Wait until late in the season to see what you really need before going to a sale to buy new ones. In addition, hang clothes up to dry instead of using a dryer. This not only saves on energy, but the clothes will last longer. Once you get used to it, you may even find this method to be less of a hassle.
Every bit counts
Remember how even small expenses can add up over time. No expense is so tiny that it should not be looked at.
Monkey see, monkey spend
It is just too tempting for many people not to spend money once they receive it. Use direct deposit and automatic deductions to investments to keep money out of sight and out of mind. Treat money that has been invested for retirement as if you never received it. It is outside of the budget and untouchable.
When learning how to budget your money, always remember that each person will have different methods that work best for them. However, everyone needs to first get a good handle on where their money is going and draw up a budget that squeezes out all the savings possible.