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For millions of Americans, “back-to-school” isn’t just a season; it’s a state of mind. And it’s an ideal time to look at things -- including your budget -- in a fresh new way.
Creating and managing a budget can be one of the most important things you do for yourself and your family. Perhaps you’re trying to build a good credit score or save for a family vacation. Or maybe you’re just trying to make ends meet. A budget can help you stay on track financially so you can achieve your goals -- both big and small. Here are three easy steps to help you create and follow a monthly budget.
Step 1: Review your financial situation
Start by gathering as much information as you can about your income and expenses over the course of a month. Remember, the more accurate the details, the more precise and helpful your budget will be.
Monthly household earnings: Write down all the money coming into your household from various sources, such as:
Monthly expenses: Note all fixed and variable expenses. Recording fixed expenses is easy since these payments occur on a regular basis. Recording variable expenses is a bit harder since these are based on your consumption of goods and services each month.
Step 2: Create an up-to-date budget
Once you’ve completed Step 1, you’ll have an accurate snapshot of your spending habits. Armed with this information, you can create an accurate budget that will help you achieve your goals.
While your fixed expenses are predetermined and most likely cannot be changed, you should be able to identify areas in your variable expenses where you can cut back on spending. For example, you may be surprised at how quickly little things -- like morning coffees, mid-afternoon snacks and magazines at the checkout -- can add up.
In your budget, determine how much money you can allot for variable expenses. As you’re doing this, keep in mind your end goal. If you’re trying to reduce debt, then aim to have money left over to pay down outstanding balances. If you’re saving for something special, then strive to have residual funds you can deposit into a high-yield savings account.
Step 3: Stick to your budget
You’ve reviewed your spending. You’ve planned and prepared your new budget. Now, all you have to do is stick to it. Easy, right? Although you might exercise extreme discipline with your budget, life is filled with surprises. A medical emergency, a leaky roof, or a once-in-a-lifetime sale . . . there are many things that can quickly derail a budget.
If you’ve strayed a lot or even a little, the best thing you can do is to get back on track quickly. It may mean paring back on spending for a while. Or, it could be an indication that it’s time to review and reassess your budget once again. Remember, as certain elements in your life change, so should your budget.
Published on August 03, 2007