This is Part 1 of my weekly series on Budget. Last week I outlined the steps to budgeting. In this post I will discuss steps 1, 2 and 3 in more detail.
Do you know how much your family spends every month? If not, why not? One of the most important aspects of controlling your finances is knowing where your money is going every month. If you don’t know where you are spending your money, it is very difficult to control spending and save money consistently. If you’re just starting a budget, here’s how to get started.
** Maintain a spending journal for at least 1 month. This is essential to estimate how much you will need to budget for groceries, eating out, entertainment, gas, car repairs, gifts, clothing, toys, beauty shop visits, coffee, soda, cigarettes, liquor, education, subscriptions, child care, etc. Also, many people who’ve never tracked spending before will actually be quite surprised to see where their money is actually going. I know I was! If you have other members of the household have them also track their expenses. To make a budget really work, everyone in the house needs to be on board.
** Make a list of all your monthly recurring expenses, like mortgage, rent, car payment, insurance (auto, health, life and home), utilities, garbage removal, telephone, etc.
*The first two steps will help you determine exactly where your money is going and see which expenses are fixed and which are flexible.*
** List all sources of income. This includes money from work, self employment, etc.
** Subtract expenses from total income to calculate the amount you have left to pay consumer debt at the end of the month. If you are spending more than you are making, this is a serious situation and take steps now to decrease spending and increase income. (I will give more ideas on this next week).
Just to put this in perspective, suppose you are spending $10 a day on lunch, and start taking leftovers instead for your lunch to work. This will free up $200 a month that can be applied to debt or $2400 every year. How much debt could you get paid off with that one change? This is just one example of how beneficial it is to know where your money is going so you begin the necessary steps to cut spending and take control of your finances.
Next Tuesday, I will discuss how to analyze your spending (that you are now recording) and discuss ideas to make budget cuts and save money.