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| Photo Courtesy: Bettina Smith |
When it comes to saving money, many people struggle to keep it. In other words, he/she have a hard time with the basic things in life, such as paying their bills and/or living the life of financial freedom. From my own experience, I know firsthand what it is like to struggle to pay bills and buy the bare necessities.
There is a solution to tracking our expenses: creating a budget. But before I get into creating a budget, there are a few terms that you should know (I know that it seems very basic; you will be surprised that many people do not know these things):
- Budget: an estimate of your income and expenses during a period of time
- Gross income: total pay prior to taxes.
- Net income, or take-home pay: This is the amount of money you get in your paycheck after taxes.
- Bi-weekly: payment every two weeks.
- Semi-monthly: payment received twice a month.
- Fixed expenses: bills that are due regularly.
- Variable expenses: bills that are due regularly; the amount varies.
- Flexible expenses: this type of expense is your choice, as in entertainment and/or hobbies.
- Unexpected expenses: this is very obvious--expenses that are unexpected, such as a trip to the emergency room or a car repair.
Of course, you have to differentiate between needs vs. wants. Needs are things that you must have just for survival. In contrast, wants are things you desire to have, however, you can live without.
Now, on to the six ways to create a budget and sticking to it:
Step 1: Learn about how much income coming in. You should have knowledge (or at least save your check stubs for these categories):
- Net income
- Other sources of income, such as bonuses, freelancing income, cash, tips, etc.
Step 2: Compile all your receipts of your spending. Collect the following of your regular monthly bills:
- Mortgage/rent
- Car payment and auto insurance
- Utility bills
- Telephone bills; this include cell phones and cable bills
Now, gather all the receipts for one month. These will include:
- Grocery bills
- Gas
- ATM receipts
- Anywhere and anytime you have spent money within a 30-day period, ranging from debit and credit cards to cash money.
Step 3: Separate your expenses into these categories:
- Fixed expenses (i.e. rent, car payment)
- Variable expenses (e.g. water bill)
- Flexible expenses (i.e. hobbies, entertainment)
- Unexpected expenses (e.g. medical expenses)
Now that you know how to create a budget--you should stick to it. Here is how:
Step 4: Be committed to the budget. If you are having trouble sticking to your budget, create a support with your trusted friend or partner. It is best to monitor your budget on a weekly basis (I monitor my budget on a daily basis).
Review your spending habits and see if it coincides with your budget guidelines.
Step 5: Set up automatic savings and bill paying. You can set up automatic savings and bill paying through your bank, or online banking. Have a portion of your paycheck to go into your savings account.
Step 6: Cut down on some expenses. You can cut down on some expenses by doing the following:
- Search for discounts and deal via the Internet
- Review and make changes to your budget as necessary; it should change and expand with your financial goals.
The bottom line is if you do not have a balanced budget, then you will have problems. You may be overspending in some of these categories. For example, housing should not cost you any more than about one-third of your net pay.
Something else you can think about--can you reduce your flexible expenses (remember what this is)? Or look at your variable expenses--can you cut back for a short period of time or permanently? Just ask yourself these hard questions. Better yet, you can also increase your income--perhaps starting a side business or maybe take a second job. I am just throwing a couple of suggestions! Whatever you choose to do, happy budgeting!
Next post: All About Couponing (Six-Part Series)
P.S. You can download this budget
worksheet just to get started.
