For the next 30 days, your challenge will be to make a budget for monthly expenses, and stick to it!
The word Budget really has a negative reputation, when people think of budgeting they think of pinching pennies and missing out on all the fun stuff. In reality a budget is just plan for the way you spend your money. If you are managing your budget it means you are in control of where your money is going and seeing that you are getting the most bang for your buck!
Setting up your budget
The first step in setting up your budget is tracking your monthly income and expenses. You’ll want to include all income sources (take home pay, not gross income) and all of your expenses divided into categories.
Some of your expenses will be fixed expenses, such as mortgage, insurance, car payments.
Others will be fixed but variable. This category is things that you will always have a monthly expense for but it can vary from month to month. Ex. you will always have utility bills and buy food, but the amount could vary every month.
You’ll also have flexible/discretionary expenses. These would be for entertainment, travel, gifts, etc.
Part of your budget should also be putting some money into savings to build up an emergency fund.
The next step is to choose a budgeting method
There are four basic ways to track your budget.
- On paper.
- With a computer spreadsheet. Many websites offer free spreadsheets that you can download into Microsoft Excel or Google Sheets.
- With an app/website. If you did the 30 day tracking expenses challenge, you may have decided to give mint.com a try (found here in the app store and here on Google Play). This is the way I track my budget.
- The envelope method. This involves dividing up money (your monthly income) into categorized envelopes (your monthly spending).
Here is a sample of what a budget may look like:
Compare income and expenses
After you’ve chosen a budgeting method and tracked your expenses, it is time to compare them to the amount of income you are bringing in.
If your income exceeds your expenses, yay! Explore ways to invest or save the extra money this month. In the example above, there was $36 leftover. That $36 could get budgeted into one of the categories, or used as an investment or savings.
But if your spending outweighs your income, you’ll need to make some decisions. Look at your categories. Is there any expenses that you feel you could cut down on? Look first in your flexible/discretionary expenses and then into your variable.
Popular ways of cutting spending:
- cable TV
- cancel subscriptions
- packing your lunch
- less expensive cell phone plan
- saving on groceries
- consolidate loans
- cut down on energy bills (turn off lights, switch to LED bulbs, lower the thermostat, etc.)
- shop for new insurance
Really think about needs vs. wants as you are looking to cut out spending. Yes I want the latest iPhone but my iPhone 5 is still fulfilling my needs😉
If you have cut all of the expenses that you can and you’re still falling short, you might have to look at bringing in more income.
Additional income streams:
- overtime
- second job
- start a side business
- sell some of your belongings
Things to keep in mind as you budget
You always want your income to exceed your expenses. But there will be times you have an unexpected bill or two, this is why you’ll want to budget some money each month to go to savings so you have a back up!
If you have expenses such as property tax that you pay annually or semi-annually, you’ll have to budget these into your monthly budget by dividing the total annual expense.
5 tips for sticking to your budget
- Review your spending weekly! If you know your grocery budget for the month is almost tapped out, can you make a frugal meal out of what you have on hand? Even if it isn’t everyone’s favorite??
- Visualize the big picture. Is passing up spending money on a daily cup of coffee really going to matter to you when those savings can add up over time to help you reach a financial goal?
- Realize that it will get easier. After you’ve been consciously thinking about the way you now spend your money, new habits will form that will help eliminate unnecessary spending.
- Celebrate your successes! Did you come in under budget in one of your categories? Did you reach a savings goal? Yay!
- Indulge once in awhile! A budget too strict will be hard to stick to!
How did your month of budgeting go?
Did you find it was helpful to have a budget for your spending? Did you have to adjust your categories? Do you think you will keep going with budgeting?
After my budget has been in place for awhile, it has helped take away some of the stress of finances. Money is a major source of stress for a lot of people so this is a good thing! I know where the money is going and that we will have enough!
Let me know how it went for you in the comments below!
